Dairy recovery in infancy despite months of price rises

Dairy processor Arla has announced that its latest price increase for February amounts to six months of farmgate price rises which have pumped an extra £51m into Britain’s rural economy.

Successive uplifts will put Arla’s standard litre price increase again, by 0.76p, to 27.07p per litre (ppl) next month but such gains have not helped pull dairy farmers out of the red, according to Michael Oakes.

West Midlands dairy farmer Mr Oakes, who is chairman of the national dairy board at the National Farmers’ Union, welcomed the new price rise but warned it cannot mask the unprecedented financial crisis that still engulfs many farms after a two-year downturn.

Mr Oakes said: “It’s all extremely welcome but for farmers like me - a tenant farmer who supplies Arla and supports them - a lot of us out there have never been in such a financially vulnerable position as today.

“Over the last two years I’ve written so many business plans and I’ve had to go back to the bank twice and say the downturn has exceeded my expectations. I’ve increased my overdraft twice and I’m certainly not on my own.

“A lot of people have done a lot of things they haven’t had to do before to survive the downturn.”

Arla increases farmgate milk price for sixth consecutive month

The UK average farmgate milk price peaked at 33.94ppl in January 2014 but then declined alarmingly to a low of 19.95ppl by last June after both China and Russia retreated from the dairy market - the latter for political reasons - leading to a global oversupply. So affected was the market that even now farmers are facing unrecognisable financial lows, Mr Oakes said.

“The vast majority of us are in a place we’ve never been before. When your milk cheque has almost halved from its highest to its lowest point but you haven’t been able to lower your fixed or variable costs you’re looking at a black hole.

“Even though we’ve had a steady increase in price, we’ve still got a lot of pain. We need to pay contractors back and have feed bills to pay. There are a lot of people relying on us and their businesses are under strain too.”

Mr Oakes believes that the recovery will take time.

“The outlook is positive, the supply and demand is more in kilter but financial pressures are still very real on farms.

“When farmers see the price increase it means they can start to pay back their bills or get their overdraft down but there will be 18 months to two years of recovery before we start to see reinvestment on farms again, and that is after two years of no investment and only if milk prices stay in the same place.

“It is a relief the price is going in the right direction, we are in a better place than we were this time last year, but by no means are a lot of us out of the woods.”

Arla increases farmgate milk price for sixth consecutive month