Farmers in debt and despair as dairy market collapses

Supermarket wars and Russia's ban on EU produce have seen tumbling milk prices and stockpiled cheese supplies. Rachael Pells reports on an industry near crisis

British dairy farmers are threatening to take matters into their own hands as fears grow that volatile markets for their milk, butter and cheese products could jeopardise their livelihoods. Some larger dairy farmers are said to have incurred debts of more than £1m since milk prices first began to plummet in May.

Caught between a UK supermarket price war and a ban by Russia on EU produce, including dairy, which many fear could lead to a glut in Europe, dairy farmers are being asked to take action to help save their industry.

In an attempt to wrest control of the falling market, Farmers for Action, who staged the 2012 SOS Dairy demonstrations, has asked its members to support direct action to be taken by the end of this week. Within 24 hours of consulting its membership, the group received more than 500 "yes" votes, with farmers from around the country expressing grave concerns over the future of UK farming.

Welsh dairy farmer David Handley, chairman of Farmers for Action, said: "We're producing more and more milk on a daily basis and we've no market for it. We've now reached a point where we're about to fall off the edge of a cliff and the situation is dire.

"By the end of the year, we expect milk prices to fall by as much as 3p per litre, which will have a devastating effect on the whole industry, not only for dairy farmers but for the 25 to 30 areas of business that are directly associated."

According to Mr Handley, national dairy processors and unions such as the NFU are to blame for the impending crisis, after they instructed farmers to increase production levels in order to compete within the growing global market.

He said: "The NFU told us that Russia is going to be a panacea, China is going to be a panacea – that we have to produce every litre of milk we can supply because they are going to buy it. But, of course, it's all fallen through.

"We feel very let down by the unions. I know farmers who have racked up over £1m in debt since milk prices dropped in May."

The bleak economic outlook for farmers is being exacerbated by a Russian ban on EU produce in retaliation for Western financial sanctions taken against it for its involvement in Ukraine. President Vladimir Putin issued a "full embargo" on fresh produce, including meat, vegetables and dairy, prompting fears over what would happen to the large quantities of unwanted supply. Dairy produce is expected to be hit hardest and cheese is already being stockpiled in Europe.

The ban comes as UK supermarkets cut the price of milk in an attempt to keep or win back market share. As a result, the average price of a pint of milk is 50p, according to comparison site MySupermarket.co.uk.

Waitrose was the latest supermarket to reduce its milk from £1.39 to £1 for four litres, following Tesco, Sainsbury's and several other competitors.

The UK market is experiencing its highest surplus in milk since 2012, when farmers protesting against falling supermarket prices blockaded processing plants and threatened to tip milk down drains.

Phil Bicknell, chief economist for the NFU, said: "The UK dairy industry produces around 13 billion litres of milk per year, making it quite a small player in the global market. The bigger risk for us is what might happen to prices in the UK if products begin to stockpile. Trying to find a home for unwanted products can affect the supply and demand, which is fragile in agricultural markets. Recently, we have seen some shifting dynamics in the dairy market globally and that has put downward pressure on commodity prices.

"It is safe to say that we are worried about the supply and demand dynamic, and the Russian ban is something else to throw into that mix."

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