Untrue numbers about milk

Farmers have warned that thousands of them will be put out of business because many are paid less for their milk than it costs to produce it. While the cost of production is around 29 or 30 pence a litre, some are paid as little as 25 pence a litre for it.

This just isn\’t true.

For some farmers the production cost is 29 or 30 p.

For others it\’s 28p, 27p, there are reports that for some megafarms it is 14p.

And yes, as some in the industry reduce their costs then the marginal, highest price, producer is to go out of business. That\’s what\’s supposed to happen.

14 thoughts on “Untrue numbers about milk”

  1. As a farmer (though not a dairy farmer) I agree. But that being the case, the government should not be standing in the way of more mega farms (particularly dairy farms) being created. The Nocton mega dairy farm was opposed by the Environment Agency and by 172 MPs who signed a EDM against it. The planning application was withdrawn as a result. (http://en.wikipedia.org/wiki/Nocton_Dairies_controversy)

    You can’t have it both ways. Either market forces rule, in which case the prices are driven downwards and the inefficient go to the wall and the remaining efficient ones get bigger and bigger, or you interfere in the market by preventing expansion, in which case I can see no reason why the supermarkets/milk processors can’t be forced to pay the price that the smaller producers can live with.

    Make your minds up. Mega dairies, or higher milk prices.

  2. And will those who campaign against mega dairies agree to subsidise the poorest people? Put the price of milk up by all means, just don’t be suprised if it reduces demand for milk – or demand for something else to pay for the milk.

  3. I can’t help thinking that some of the problem is the monopsonistic power of the buyers. The farmers have no power to break the contracts, though the buyers can seemingly alter them at will.

    Precisely how much over-production of milk is there?

  4. @ Tim – this is an opportunity for an anti-EU rant. Stop imports of French milk and milk products and the alleged UK surplus will disappear in a cloud of smoke.
    Tesco is selling milk at more than twice the price it pays the farmers (around 70p/litre, depending on the size of the bottle) so there is no need for the poor to pay more for milk – just a reduction in the supermarkets’ profit margins. [Yes, I know that there are bottling and transport costs, but not *that* much more than 100% of the cost of the milk]

  5. There’s a report here on milk production costs.

    The costing methodology is discussed here. Signing up for these costings is voluntary: I suppose that the more intelligently managed dairy farms are more likely to be using the system.

    What I get from it is:
    – milk production costs are in the range 18-47p/litre (figure 1d). The median price looks to be about 26 or 27p. The proportion of farms which will be making a loss at prices below 30p is far in excess of a plausible estimate of the extend of oversupply.

    – About half of the work is done by “family labour”. There’s an imputed cost for this; I’d be surprised if it’s not an underestimate. No cost is imputed to management time: judging by Tim’s recent post on the subject he won’t agree with that approach.

    – lower cost farms have lower labour costs and lower machinery costs: lowering costs is not simply a question of more mechanization

    – yield per cow is not an important factor in production costs – increasing yield by using expensive cattle feed may not make production cheaper.

    – The lowest potential production costs are for “cow at grass” farming, not for “high output” farming.

  6. John77 – I’m not seeing the link between price supermarket pays the farmer and the price on the shelf allowing much variation in price paid to the farmer.
    Pretty sure Tesco aren’t selling a steel container full of milk like the farmer is. Don’t forget also – both tesco and farmer are businesses – not social support systems.

  7. “The farmers have no power to break the contracts, though the buyers can seemingly alter them at will.”

    Apparently that is how the contracts were written.

    Which rather prompts the question “What kind of idiot would agree to a contract like that?”

    One who thinks he can rely on endless state subsidy and limitless public sympathy, apparently.

    Well guess what, it’s a business like any other. Let them eat cake.

  8. John 77 @ 4. You say “@ Tim – this is an opportunity for an anti-EU rant. Stop imports of French milk and milk products and the alleged UK surplus will disappear in a cloud of smoke.”

    I think Mr W is not anti-free trade, just anti EU, so he is (or should be) in favour of imports from France.

  9. “Which rather prompts the question “What kind of idiot would agree to a contract like that?”

    One who has no choice? As I say, monopsonistic buyers. Sure, there may be over-supply, but ISTM that the market mechanics are impacting adversely in the market for milk.

  10. Philip Scott Thomas

    According to the interviewees on the BBC R4 lunchtime news today, only about 40% of milk produced in Britain goes on to be sold in supermarkets. The rest goes to corner shops, manufacturers and cheese makers.

    In between the farmers and the supermarkets are, of course, are the producers. And they’re the ones who are setting the price paid to farmers. Apparently there is significant global overproduction at the moment. The cream price, for instance, has collapsed.

  11. Two winters ago the three diary farms near me had to pour their milk down the drain when the snow blocked us in. Two didn’t get paid, the one with the supermarket contract did because it was the supermarkets job to collect.

    Just saying its not all a one way street.

  12. @ Luke
    The CAP limits the allowed production of milk by UK farmers to permit French farmers to export to the UK. This is NOT free trade

  13. As some go out of business and the megas get bigger will not the ‘too big to fail’ syndrome eventuate.
    Especially when some megas are found to do strange but profitable things to milk and its ‘futures’.

  14. And yes, as some in the industry reduce their costs then the marginal, highest price, producer is to go out of business. That’s what’s supposed to happen.

    What’s supposed to happen is that the price falls until the production of all those not making a loss exactly matches demand. It’s pretty clear from the data that producer prices have gone lower than that.

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