Crisis sweeps British dairy farms

[Guest guest]

By Jorn Madslien

BBC News Online business reporter

 

Cash cows no more

Britain's largest farmer announced last week plans to sell all its 2,330

cows and sell or close its dairy enterprises by spring next year.

The Co-operative Group's farming business is run under the name Farmcare.

Its decision to pull out of milk production is seen as symptomatic of an

industry in deep trouble.

 

"We're not making any money in dairy farming and have made a strategic

decision to pull out," Co-op spokesman Martin Henderson told BBC News

Online, insisting fruit and vegetable production will prove more financially

rewarding.

 

Virtually worthless

 

The giant cow sale will do little to fill the Co-op's purses, predicted

former dairy farmer Patricia Stanley.

 

The only people who are going to stay in will be the family farmers who

work every hour God has given them for no return.

 

Former dairy farmer Patricia Stanley

Last month, Ms Stanley's family in Leicestershire also left dairy farming,

and the sale of its 250 cows "fetched zilch", Ms Stanley told BBC News

Online.

 

"They are dispersed in front of you, it's very brutal."

 

But her family had been left with no choice: "What's happening is

unsustainable," Ms Stanley says.

 

"We couldn't continue dairy farming at costs that are higher than the price

of milk."

 

Falling prices

 

It used to cost the Stanley family 21 pence to produce a litre of milk.

 

 

Farmers blame commissioner Fischler's reforms for their woes

 

Yet, over the last three years they have been forced to accept prices as low

as 17.5p, with a drop to 16p likely in the near future, Ms Stanley predicts.

 

Five years ago, dairy farmers would earn an average 24p per litre.

 

Market support

 

The Co-op, which produces more than 20 million litres a year at four UK

locations, agrees that the situation is about to get worse.

 

"Recent Common Agricultural Policy (CAP) reforms are likely to drive liquid

milk prices down in the UK, and make businesses dependent on subsidy

payments," said Christine Tacon, general manager of the Co-op's Farmcare.

 

This is because forthcoming CAP reforms will reduce the so-called

"intervention price" - that is the price the European Commission will pay to

support farmers when market prices collapse, explained NFU milk advisor

Philip Hudson.

 

Intervention prices will be cut by 22% over four years, starting next year.

In return, farmers will receive a one-off payment which the NFU estimates

will compensate for about 60% of the cuts.

 

In real terms intervention prices paid to UK farmers have already slipped -

due to the strength of Sterling since the payments are worked out in euros,

then exchanged into pounds.

 

The strong pound has also made it cheaper for retailers to import dairy

produce such as yoghurt and cheese, thereby speeding up an already

accelerated change in consumer tastes, Mr Hudson told BBC News Online.

 

Decoupling

 

Another reform set to hit British dairy farmers is the removal of the link

between subsidies from Brussels and farm output, for example the number of

litres of milk produced.

 

 

Milk profits do not trickle down to the farm

In the future, subsidies will instead go to farmers who deliver certain

public goods, such as land management, environmental protection, food safety

and animal welfare.

 

"These goods have to be guaranteed also in the future. Without guaranteeing

these goods, farmers will not get any direct payments," Mr Fischler told BBC

News Online in an interview in July 2002 when he revealed his reform plans.

 

Equitable returns

 

Farmers are not merely blaming policy from Brussels, though.

 

Supermarkets and milk processors are also slammed for failing to pass on a

proportion of their milk profits to dairy farmers at the very base of the

distribution chain.

 

There is not an equitable distribution of the returns in the market place

 

NFU milk advisor Philip Hudson

 

"The supermarkets have been screwing the farmers to the floor," says Ms

Stanley.

 

Mr Hudson, loath to go head-to-head with the dairy farmers' customers,

appears keen to be more diplomatic.

 

A farmer earns on average 18p per litre of milk, while the retail price is

much higher, Mr Hudson reasons.

 

Farmers' profit margins from selling liquid milk is either low, zero or even

negative, while others in the supply chain are able to make profits from

milk sales, he continues.

 

Hence "there is not an equitable distribution of the returns in the market

place", he concludes.

 

Pulling out

 

There is no quick fix in sight.

 

And until one appears, dairy farmers across the country will be readying

themselves for a slew of less than smooth exits from the industry.

 

"The only people who are going to stay in will be the family farmers who

work every hour God has given them for no return," says Ms Stanley.

 

"There is no way anyone can employ people."

 

Numbers have already slumped, from 34,242 registered dairy farms in 1997 to

25,548 in 2002, Mr Hudson says.

 

That is an average yearly reduction of 3-5%, he says.

 

In reality, the number of active farms is probably lower, perhaps as low as

20,000, he says.

 

This is because many farmers are keen to retain their milk quota in the hope

that the good times will return, and they therefore remain registered even

after they have ceased to produce.