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Tuesday 20 January 2015, Rob Lyons

Cheap milk, bankrupt farmers and the future of food

Do British farmers really need special protection?

The plight of Britain’s dairy farmers is back in the news today. The Commons Environment, Food and Rural Affairs Committee has demanded that the UK government provide better protection for farmers by extending the remit of the government’s groceries watchdog to cover dairy suppliers. In general, supermarkets are on the receiving end of criticism because of a price war over milk, including the oft-stated but erroneous claim that milk is now cheaper than water.

However, the committee acknowledges in its report that the causes of the slump in milk prices are much complicated. ‘Worldwide pressure on milk prices has resulted from a combination of rising supply and falling demand, partly because of reduced demand from China and a Russian trade ban with the EU. Rapid and wide fluctuations in milk price bring pressure to bear on the UK dairy industry, and farmers have been leaving it in significant numbers in recent years.’ The committee would, effectively, like to see special treatment given to British dairy farmers.

As the Telegraph‘s Harry Wallop has noted, however, blaming the supermarkets is largely misplaced. If anyone is paying something like a fair price for milk, it’s the major retailers: ‘For starters, some of the supermarkets have set up protected contracts for their suppliers. These all operate a bit differently, but, in the case of Tesco, for instance, the supermarket guarantees its farmers are paid the cost of production, plus some money on top. Sainsbury’s, Waitrose, Marks & Spencer and (to an extent) Asda, pay their suppliers in this way, too. So far, so paternalistic.’

But while much attention is paid to fresh, bottled milk, it is actually the rest of the market – supplying milk for cheese, butter and powdered milk – that is the problem. There, milk is much more commoditised and if there is a glut – as we have now – then prices will fall in line with this excess supply.

Should we really expect consumers to pay more for milk to prop up suppliers? After all, no one expects us to pay more for petrol to support the oil industry. Should we go back to old-fashioned price controls to protect the domestic dairy industry? Or is this current crisis an opportunity for introducing new technology, driving efficiencies and achieving economies of scale?

Some of these issues were examined during a wide-ranging debate, ‘Feeding the world: can we engineer away hunger?’, at the Battle of Ideas last October. Does our demand for more food at lower prices mean we must say goodbye to our romantic ideal of the small farmer and embrace the mega-dairy? Watch the video here.

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