Food manufacturers hit by soaring dairy prices

Picture by Jon Super for The Financial Times newspaper.

Pic fao Marcus Cotton re story by Chloe Cornish.

Picture shows Joe Towers with Jersey cows from Brades Farm Dairy near Lancaster, June 15, 2017. The dairy produces most of the Barista milk used in London's coffee shops.

(Photo/Jon Super 07974 356-333)

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A combination of farmers going out of business and a cold spring have chilled UK dairy production and sent prices soaring for food manufacturers.

According to data from the Office for National Statistics, the price paid by food manufacturers for dairy products grew 4.7 per cent between April and May and 18.7 per cent in the year.

Michael Oakes, chairman of the National Farmers Union dairy board, said UK supply had fallen partly because so many farmers “decided enough was enough during that downturn”.

Since 2014, when many farmers sold milk for less than the cost of producing it, the number of UK dairy producers has fallen about 2.5 per cent every year.

As a result, by last July, milk deliveries had fallen by as much as 8 per cent in the year, although that had eased to 1.5 per cent by March, and deliveries in April were flat. Production across the EU has also fallen.

The Agriculture and Horticulture Development Board said that “poor weather and grazing conditions” have also “taken their toll” on UK milk production.

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So far, the rising dairy prices for food manufacturers are not being passed on to shoppers, except in one notable case: supermarket butter prices have gone up 10 per cent over the past year, according to consumer research company Kantar Worldpanel.

Kantar’s Fraser McKevitt said that, in fact, the price of butter is going up faster than any other grocery item. Milk prices in supermarkets, on the other hand, have barely moved — edging up just 2 per cent, which is below general consumer price inflation of 2.9 per cent a year.

Some milk can be sold at a premium, and UK farmers tapping into those markets are reaping rewards.

In Lancashire’s rolling Lune Valley, brothers Joe and Edward Towers were hit hard by 2014-16’s falling milk prices, as the 350-acre family dairy farm haemorrhaged money.

Their peers also struggled: in January 2014, there were 555 registered dairy farms in Lancashire, according to the AHDB. By December 2015, 35 had closed.

“We weren’t a business; we needed a reason to be,” said Joe, a 26-year-old former coffee trader. “We had to take a gamble.”

Spotting a growing niche market, the Towers’ spent hundreds of thousands of pounds on a new venture: supplying specialist milk with a high protein content to London’s artisan coffee shops.

It was a rocky start. Relations with their first London distributor soured, and the flooding in the winter of 2015 threatened their expensive new Jersey cows.

Nonetheless, the brothers’ gamble seems to be paying off. Their new distributing partner called them earlier this month with a good sort of bad news — they had run out of milk. The brothers’ barista milk, for which they charge a sustainable price of above 30p a litre, is in demand.

The family now has 110 of the honey-coloured Jersey cows, who produce the high protein milk, and 340 black-and-white Friesians supplying local and spot markets.

“I know it’ll come again,” Ed said, referring to the “rough patch” of the past few years, “but I’m massively relieved. It’s not nice when hay suppliers come round because you haven’t paid . . . not because you’re a bad payer, just because you can’t.”

Source: Financial Times

Link: https://www.ft.com/content/dd9e39f2-52a3-11e7-a1f2-db19572361bb

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