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Saturday, December 16, 2017
 Dairy Commodity Price Recovery "Not Likely Until 2013"  

Global commodity dairy prices, which are underpinning the current UK milk crisis, are unlikely to recover until 2013, according to a global dairy analyst.

Kevin Bellamy, of Rabobank International, stressed that processors and retailers could not be wholly blamed for the crisis gripping the UK milk sector.

“The world market has been over supplied for a while - prices have been dropping for more or less a year on international markets,” he said during an online Farmers Guardian debate.

He highlighted falling cream prices, in particular, which fell from £1,800/ton in June 2011 to £840/t this April, before recovering to £1020/t in June.

He said weak global commodity are showing some signs of stabilizing not improving much over the last quarter of 2012 ‘as people work through stocks’. “We will then see prices recovering further throughout 2013. The US drought situation may cause things to improve sooner,” he said.

He said the situation in the UK had been exacerbated by the pound strengthening against the Euro, cheap cheddar imports flooding in from Ireland, which has a target of increasing milk production by 50 per cent once quotas are removed, and continuing imports of butter from around the globe.

“Therefore, while supermarkets make an ‘easy target’ and a code of practice will ‘focus the arguments’, it will not solve the dairy sector’s problems, he argued.

“Britain needs to see itself more as part of the wider dairy market,” he said. “My concern with the voluntary code is that over half the cheese and about a third of the butter eaten in the UK will be from outside the UK. Britain has major EU processors Arla, Muller, and Lactalis investing, yet we still talk always of the liquid milk market and the Island UK.”

Jim Begg, director general of Dairy UK, which represents the UK’s big milk buyers, also stressed that the UK industry ‘operates in a globalized, hugely competitive and enormously volatile, market environment’.

“Global dairy markets have fallen dramatically and these collapses have had an impact on producer prices all over the world,” he said, pointing to the ‘de-regulation’ of the markets under CAP reform.

He said signs that global dairy trends ‘may be turning a corner’ would be ‘good news’ if it materializes.

But NFU president Peter Kendall said he was ‘sick and tired’ of hearing from processors, retailers and some Tory MPs that ‘this is simply the market at work’.

He pointed out that the UK had the lowest price in the whole EU27 last year and described the UK dairy market as ‘dysfunctional in the extreme’.

He accused processors of using high commodity prices of a few years ago to offer lower prices and ‘give margin to the retailers’ but then of trying to ‘claw the drop in prices back from farmers’.

“Processors either need to take responsibility and ensure farmers receive a stable price that covers costs, or allow them to enjoy the highs of the market and not just the lows status quo is worst of all worlds,” Mr. Kendall said.

“The processors who understand the volatility of markets need to work with farmers and retailers to create long term stability,” he said.

Cheshire farmer Phil Latham reinforced the point, accusing Dairy Crest and Wisemans of ‘trading blows and in trying to retain supermarket contracts giving the milk away’. In doing so, they relied on cream price to support their businesses so that when commodity cream price fell ‘they have lost their profit’.

“The milk prices to farmers in non-aligned contracts have been hammered to reduce these processors costs and other milk buyers have in turn taken their lead to drop price too,” he said.

Commenting before the Co-op and Morrisons announced price increases, Mr. Kendall said these two retailers plus Asda were also ‘legitimate targets’ as they have strong corporate responsibility plans yet were paying farmers below the cost of production.

Mr. Latham added that some retailers were also guilty of ‘discounting milk and reducing the available margin on order to promote footfall to their stores’.

But Mr. Begg insisted ‘market returns feedback to farmers - not always perfectly but over the long term this happens’.

“Processors who don’t do this will eventually lose farmers so a processor has nothing to gain from not maintaining a competitive price. The market drives everything and even more so now as markets are increasingly de-regulated and therefore increasingly volatile,” he said.

Source: Farmers Guardian

http://www.farmersguardian.com/home/business/-dairy-commodity-price-recovery-%E2%80%98unlikely-until-2013%E2%80%99/48543.article
 


Posted on Thursday, July 26, 2012 (Archive on Thursday, August 02, 2012)
Posted by bsutton@adpi.org  Contributed by bsutton@adpi.org
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