What’s wrong with British dairy farmers?

Dairy farmers are protesting against low milk prices and farmers unions want the government to intervene. Are supermarkets to blame, or is dairy production flawed? Matthew Partridge reports.


Do we need fewer but bigger dairy farms?

What's going on?

Milk farmers have been protesting about low milk prices, using everything from publicity stunts such as walking cows through a branch of Asda to more aggressive action, including a tractor blockade of a distribution centre for Morrisons supermarkets. Farming unions have meanwhile launched an "action plan", calling for government intervention in the milk production industry.

Specific measures that they want to see implemented include: better labelling and promotion for British produce, improved contracts, cheap credit, and an end to what they see as the sale of milk at rock-bottom prices.

What's the main problem?

Plenty of issues are troubling farmers, but the biggest is that they can't make money by producing milk. Farming unions say that while the cost of producing a litre is around 33p, they can only get 23p a loss of 10p on every litre. That's a fall of 25% in the past year, a hefty drop even by the volatile standards of dairy farming. More generally, tough conditions are putting many dairy farmers out of business a recent report by House of Commons researchers suggests the number of farming units halved from 28,422 in 2000 to just 14,159 in 2013.

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While some of this can be explained by an increase in the scale of farms, the total number of cows in the UK also fell by 25% from 2.34 million to 1.78 million over the same period. In 1980, Britain had 3.2 million cows. So dairy farming is arguably in decline.

Why do dairy farmers get so little?

Farming unions argue that supermarkets are "dumping" milk selling it cheaply to steal customers from one another and are especially critical of Aldi, Lidl, Morrisons and Asda, who have been engaged in a price war. Farmers also argue that in the long run consumers have seen little benefit from falling prices, because supermarkets still charge around 50p a litre more than farmers receive.

That's partly because the top five supermarkets account for nearly 70% of milk sales, and so have more pricing power when it comes to both buying and selling than the relatively fragmented milk production sector. The supermarkets blame low prices on a surge in cheap imports from Europe, prompted by the European Union's recent decision to scrap country-by-country limits on milk production and also Russia's move to block Western imports in reaction to sanctions imposed following the invasion of Ukraine.

Does it matter if farmers go bust?

Consolidation "will be a brutal experience for many", admits Rob Lyons of Spiked, but it would result in "more efficient milk production, to the benefit of everyone else". For example, "China already has dairy production units of up to 40,000 cows", whereas the "average UK herd size is just 133".

This contributes to making milk production more expensive in the UK than in New Zealand, for example, notes Andrew Critchlow in The Daily Telegraph, where "giant dairy farms have left their mark on the land with purpose built cattle runs and giant milking parlours". In short, Britain is "arguably behind in large-scale industrial farming practices" and needs "fewer but bigger dairy farms".

This purely economic view, of course, ignores the fact that small dairy farmers provide wider benefits, argues Patrick Holden of the Sustainable Food Trust in The Guardian. Such farms "are the stewards of our landscapes, field boundaries and hedgerows, the guardians of the fertility of the soils, the pastures, biodiversity and the ancient green lanes".

What about farming in general?

Falling food prices are having an impact across the agricultural sector. The price of lambs has fallen by half over the past year, plunging sheep farming into crisis. More generally, the farming population is shrinking and ageing, to the point where the National Farmers Union has claimed that Britain is no longer self-sufficient in food the proportion of domestically produced food consumed in the UK has dropped from 87% in 1990 to 68% today. Even our dairy industry depends heavily on soybeans imported from China, India and Africa for cattle feed.

Are there any solutions?

A return to the central distribution of milk seems unlikely (see below), but the government has pledged to cut red tape and consolidate various inspection bodies. Other suggestions include farmers cutting out the dairies and selling to supermarkets directly the Co-op already pays above-market rates to those farmers who cut out the middlemen but bypassing distribution companies may not be practical for smaller farms. Consumer pressure is another option Morrisons has agreed to sell a special brand of milk alongside the regular one, which pays an extra 10p to farmers. Other options include higher-margin niche markets, such as organic milk, although this may not work for everyone.

The death of the Milk Marketing Board

From 1933 to 1994 the government tried to set a minimumprice for milk via the Milk Marketing Board (MMB). Whilefarmers could theoretically make their own deals, this bodybought up most milk produced, then used its power to keepthe wholesale price high. It also promoted milk consumption.

However, says Andrew Critchlow in The Daily Telegraph, itscartel-like grip on the market meant it was "mostly unlovedby both the farmers who relied upon it and the retailers".Milk Marque attempted to carry on the MMB's work in theform of a farmers' co-operative, but it was broken up in 2000due to competition concerns.

An earlier version of this article gave the figures for the cost and selling price of milk per pint. It should have been per litre.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri