DISCUSSION

Milk Prices Going Sour

June 19, 2009Written by RetailWire Staff

By Bernice Hurst, Contributing Editor, RetailWire

A combination of retail and manufacturer pressure as well as market deregulation is causing crisis conditions for dairy farms across the globe. As Dean Best of just-food explained, the global economic downturn has been "sapping consumer demand for dairy products and forcing dairy commodity prices down." Small herds and inefficiencies have also been cited by some who believe that imported milk offers better value.

Smaller farmers have been particularly challenged in competing with so-called super-dairies, according to Stephen Oldfield of PriceWaterhouseCoopers (PwC). PwC was recently appointed as receiver to cooperative Dairy Farmers of Britain (DFB) which supplied some 10 percent of the country's milk. DFB's 1,800 farmer members won't be paid for their May deliveries; June payments are also in doubt.

Individually, the cooperative's members stand to lose their initial investment as well as current and future revenue streams. Hayley Campbell-Gibbons, chief dairy adviser to the National Farmers' Union (NFU), told the Financial Times, "The average farmer with 200 cows will lose at least £14,000 on milk and about £50,000 in investment."

Just-food also reports that France's farmers federation, the FNSEA, "has called on its members in all areas of the farming sector to 'make a stand' against market deregulation and the system of price margins, which it says heavily favors food processing groups and retailers." Industrial action planned for June 11-13 was "aimed at retailers' distribution platforms as well as hypermarket and supermarket outlets," just-food went on. Blockades at several distribution centers were blamed on dairy farmers who were unhappy about a previously negotiated price agreement.

American dairies are also suffering. The Scranton Times Tribune reported on similar problems for dairy farmers in the region. As one said, "There were times before when the prices were low, but the costs were never so high." In Pennsylvania, average prices dropped 33 percent in the last year but production costs were only down by 8 percent. Expenses exceed payments for many.

Efforts by both the E.U. and the U.S. to support dairy farmers with export subsidies have irritated Australia and New Zealand, however. As major exporters themselves, ministers from the two countries joined several others in Bali to protest against protectionism.

As for DFB, while large suppliers and other cooperatives continue supplying retailers, consumers may not even notice any difference. Several large dairies are already in negotiation to buy DFB which means that as its members either find new customers or go out of business, further consolidation may result. This could also be seamless as far as the general public is concerned.

Discussion questions: What, if anything, can or should be done about the plight of dairy farmers? What ramifications might it have for dairy prices in the future? What's the root of the dairy industry's problems?

[Authors commentary] On Friday, June 12, just-food reported that French government ministers had called a meeting with the farmers' union following blockages at distribution centers. The dispute is by no means settled, however, as retailers' initial offer would be funded by increasing the price to consumers, something one union representative described as "too easy."

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