First Milk became the latest firm to announce a reduction in milk price today (January 5). It declared a 2.43 pence per litre (ppl) drop in the price it pays farmer suppliers for milk for dairy products and a 1.6ppl fall in the price it pays for liquid milk. The cuts will take effect from February 1.
Nick Holt-Martyn, consultant at The Dairy Group, said a continued decline in prices was inevitable in hindsight, as continued oversupply increased the need for EU-wide intervention to stabilise the market. He was responding to the 8% drop in European dairy giant Arla’s milk price this month.
“Plans for dairy expansion post quota in Ireland for example did not appear to consider what the effect would be on milk prices if they were joined by Germany, Holland, Denmark, Poland and others in this liberated dairy world,” he said.
Intervention
“With the Irish Dairy Board forecasting a 2015 milk price of 20ppl and 10% growth in supply the effect is all too clear. The spectre of a greatly extended PSA [Private Storage Aid] and even Intervention is starting to loom on the horizon!”
PSA schemes help traders with the cost of putting products into storage, curbing supply and reducing surpluses.
Intervention measures are funded by the EU and entail buying up surplus stock and storing it on behalf of the European Commission. Both types of schemes are administered by the Rural Payments Agency.
Hit rock bottom
Holt-Martyn said global dairy trade prices had hit rock bottom shortly after 50,000t of dairy product had been sold at auction in October 2014 – the highest amount for a year.
“While I don’t think they could have prevented the decline it does seem a bit reckless to offer so much product on a market that had lost 33% of its value in the previous six months,” he added.
In general, liquid milk and cheese prices, at 27–30ppl, were delivering better returns than milk powders, prices for which were hovering at around 20ppl, he added.
‘Likely to get rougher’
First Milk chairman Sir Jim Paice, MP for South East Cambridgeshire, said: “During meetings which we held across the country in November, we shared our view with members that this market was likely to get rougher before it gets better. Unfortunately prices for core dairy products have softened further since the start of December.
“The rest of the board and I remain acutely aware of the difficulties that the extreme market volatility is causing our members and dairy farmers around the world.
“We do not know how long this current downturn will last, however our priority is to make the business and our manufacturing assets as secure as possible in order that we can continue to process and market every litre of members’ milk.”