The British Cheddar market is being dragged down by pressure from cheap imports with wholesale prices predicted to fall even further, warned the National Farmers’ Union (NFU).
Any processor that is manufacturing commodity Cheddar will be massively exposed to poor returns in a weak market where contracts are being renegotiated frequently, claimed NFU dairy board chairman Gwyn Jones.
His warning came as another round of milk price cuts were announced, which Jones claimed would trample any “green shoots of recovery” in the fragile dairy industry. This month Arla Foods and First Milk dropped the price of milk paid to suppliers.
Arla said that its decision to reduce its standard litre price by one pence to 24p, with effect from May 1 2009, was the result of the continued weakness of dairy commodity markets and the consequential impact on all of Arla’s surplus cream returns.
“The first quarter of 2009 has proved to be tough and while we believe the long-term prospects of the industry are positive, indications are that the tough environment will continue for the foreseeable future,” said Hanne Søndergaard, deputy chief executive officer of Arla Foods UK, with the responsibility for milk procurement.
Earlier in the year Arla, First Milk, Dairy Crest, Robert Wiseman and Dairy Farmers of Britain also cut the price they paid to farmers following an 18.6% drop in cream income between the third and fourth quarters of 2008.
Dairy Farmers of Britain said early in 2009 that lower consumer demand, continued poor returns from cream sales, weakening commodity markets, milk imports and aggressive competition in the market were the main reasons for imposing the reduction.
Jones added: “Milk Link must be applauded for holding its April price, but why is it one of a minority of processors able to achieve this? Serious questions need to be asked about how effectively other companies are managing the pressure and how effective their strategies are for getting the best returns from a volatile market.
“The ingredients market appears to have bottomed out in recent weeks ... Cream prices actually increased between February and March and further weakening of sterling recently only improves our position. All this means that any cuts linked to further pressure in ingredients and falling cream prices have to be challenged.”