Milk Prices

[ralphrj]

BMWBen said:

I'm really struggling to understand the economics here... Why doesn't the farmer refuse to sell at less than 70p? Is there some dark force that makes him sell it at that price? If he's not making any money on it why is he doing it? A farmer who can't understand the very basic things about running a business gets no sympathy from me.

Basically, very big supermarket can dictate to the very small farmer.

If a farmer refused to sell at less then 70p then the supermarkets would not buy it and the supply of milk would fall by 0.001%. This would have no impact on the price or supply of milk in the supermarkets but having to pour away the milk would bankrupt the farmer very quickly.

Supermarkets don't care that ultimately all milk farmers may go out of business as they can source the milk from France/Germany etc. The customer will pay the extra it will cost to transport it.

[Sticks.]

rudecherub said:

But the Big 5 Supermarkets function as a monopoly buyer, if you don't sell to the cartel you can't sell.

Apparently, farmers are tied into a year-long contract, during which the buyer can vary the price if they wish.

Mark Benson said:

.....we have handed the control of the country's food supply to the big supermarkets who don't answer to us or the government any longer. We've created a monster which has destroyed our farming industry and when import prices rise steeply, we'll finally come to realise what a bad idea that was.

About the size of it.

[hidetheelephants]

Ozzie Osmond said:

It's the idiot "hobby farmers" who cause a lot of the trouble. Having made their money elswhere they fancy the country gent lifestyle and are willing to pay for it - which includes farming for little or no profit. They move the market price downwards and farmers who're doing it for a living get shafted. Like all markets, the farm products markets are very sensitive around the edges.

Got evidence of that?

[BMWBen]

andrew830 said:

BMWBen said:

Mark Benson said:

Murph7355 said:

Mark Benson said:

...
If it costs a farmer around 29p to produce a litre of milk which Tescos sell for 49p, then the vast majority of profit must have been taken by Tescos - there is no way milk costs 20p/litre to process and transport...

I have no idea on the actual costs. But as a layman I can easily imagine the costs to transport, process, transport again, store, package, stock and sell, plus the cost of wastage, could easily add up to that. Especially as many of those things, for milk, will be fuel intensive.

I can believe it at least as easily feeding, watering and milking cows costs 29p (living next to a farm I would think more would be the case btw).

I wonder how much profit they actually make on a litre.

From 2009;

61p - cost to farmer to produce four pints
58p - paid to farmer by processor
£1.07 - paid to processor by supermarket
£1.45 - cost to customer to buy four pints from supermarket

Farmer 3p loss
Supermarket 38p profit.

Source: DairyCo

I'm really struggling to understand the economics here... Why doesn't the farmer refuse to sell at less than 70p? Is there some dark force that makes him sell it at that price? If he's not making any money on it why is he doing it? A farmer who can't understand the very basic things about running a business gets no sympathy from me.

We understand how to run a buiness and if you look back over the last 15 years you will see how we have made huge changes.We are now much more efficent in terms of output per man and capitol used.
What the issue is you cannot start and stop a dairy farm like a factory,it takes a minimum of 2 years from when a calf is born untill it produces any milk,when you are up and running milk can only be stored for 48 hours any longer and it is thrown away.
In the mean time you still have to feed them everyday and milk them.
What the dairy farmers are calling for is new contracts with dairies so instead of being contracted for 12 months we can get out with 3 months notice,that way if one drop the price we can move to another.Thats assuming there is more than one dairy in the area.

So it sounds like farmers are making poor decisions en-masse. Why don't you demand price controls in your contract with the dairy? If all farmers demanded this then there wouldn't be a problem right? If then one decided not to and got all the business, then well, that's business. Welcome to capitalism! There must be some benefit to selling the milk or you'd just slaughter/sell your herd and do something else. If you're stuck because the price has dropped since you started making the investment in the herd, then this particular situation will gradually disappear as supply drops due to nobody investing in new cows.

Surely?

[Project C]

Justayellowbadge said:

I'm going to guess you work in agriculture?

Umm, No! My Granddad did work for the Milk Marketing Board and lived across from a farm but I'm not in agriculture at all.

I just feel that its wrong that the producer can't get a fair price for his product when everyone else in the chain is making money.

When you can buy water for less than milk something has to be wrong.

[BMWBen]

ralphrj said:

BMWBen said:

I'm really struggling to understand the economics here... Why doesn't the farmer refuse to sell at less than 70p? Is there some dark force that makes him sell it at that price? If he's not making any money on it why is he doing it? A farmer who can't understand the very basic things about running a business gets no sympathy from me.

Basically, very big supermarket can dictate to the very small farmer.

If a farmer refused to sell at less then 70p then the supermarkets would not buy it and the supply of milk would fall by 0.001%. This would have no impact on the price or supply of milk in the supermarkets but having to pour away the milk would bankrupt the farmer very quickly.

Supermarkets don't care that ultimately all milk farmers may go out of business as they can source the milk from France/Germany etc. The customer will pay the extra it will cost to transport it.

That gets a special tiny violin. If the UK farmers can't be competitive against other farmers in Western Europe when they have the advantage to lower transportation costs etc then they have no business being in business.

[rudecherub]

BMWBen said:

So it sounds like farmers are making poor decisions en-masse. Why don't you demand price controls in your contract with the dairy? If all farmers demanded this then there wouldn't be a problem right? If then one decided not to and got all the business, then well, that's business. Welcome to capitalism! There must be some benefit to selling the milk or you'd just slaughter/sell your herd and do something else. If you're stuck because the price has dropped since you started making the investment in the herd, then this particular situation will gradually disappear as supply drops due to nobody investing in new cows.

Surely?

But you're forgetting the EU CAP is manipulates the market by insisting we import, and subsidising small farms on the continent - we are only allowed to produce 80% of the milk the UK demands.
Then Supermarkets have pushed farmers down so that we now don't even produce that 80%.

[Oldred_V8S]

MX7 said:

I'd be happy to pay a bit more for milk, but I'd perfer it if the supermarkets accepted that milk is key product, and it shouldn't be considered a high profit product.

I would also be happy to pay more for milk, but I would like the full uplift to go to the farmers rather than the money grabbing fking supermarkets. I guess that is not possible.

[rudecherub]

BMWBen said:

That gets a special tiny violin. If the UK farmers can't be competitive against other farmers in Western Europe when they have the advantage to lower transportation costs etc then they have no business being in business.

British Farms are the most productive in the EU, hence are disadvantaged - the other less efficient get *more* subsidy

[andrew830]

BMWBen said:

andrew830 said:

BMWBen said:

Mark Benson said:

Murph7355 said:

Mark Benson said:

...
If it costs a farmer around 29p to produce a litre of milk which Tescos sell for 49p, then the vast majority of profit must have been taken by Tescos - there is no way milk costs 20p/litre to process and transport...

I have no idea on the actual costs. But as a layman I can easily imagine the costs to transport, process, transport again, store, package, stock and sell, plus the cost of wastage, could easily add up to that. Especially as many of those things, for milk, will be fuel intensive.

I can believe it at least as easily feeding, watering and milking cows costs 29p (living next to a farm I would think more would be the case btw).

I wonder how much profit they actually make on a litre.

From 2009;

61p - cost to farmer to produce four pints
58p - paid to farmer by processor
£1.07 - paid to processor by supermarket
£1.45 - cost to customer to buy four pints from supermarket

Farmer 3p loss
Supermarket 38p profit.

Source: DairyCo

I'm really struggling to understand the economics here... Why doesn't the farmer refuse to sell at less than 70p? Is there some dark force that makes him sell it at that price? If he's not making any money on it why is he doing it? A farmer who can't understand the very basic things about running a business gets no sympathy from me.

We understand how to run a buiness and if you look back over the last 15 years you will see how we have made huge changes.We are now much more efficent in terms of output per man and capitol used.
What the issue is you cannot start and stop a dairy farm like a factory,it takes a minimum of 2 years from when a calf is born untill it produces any milk,when you are up and running milk can only be stored for 48 hours any longer and it is thrown away.
In the mean time you still have to feed them everyday and milk them.
What the dairy farmers are calling for is new contracts with dairies so instead of being contracted for 12 months we can get out with 3 months notice,that way if one drop the price we can move to another.Thats assuming there is more than one dairy in the area.

So it sounds like farmers are making poor decisions en-masse. Why don't you demand price controls in your contract with the dairy? If all farmers demanded this then there wouldn't be a problem right? If then one decided not to and got all the business, then well, that's business. Welcome to capitalism! There must be some benefit to selling the milk or you'd just slaughter/sell your herd and do something else. If you're stuck because the price has dropped since you started making the investment in the herd, then this particular situation will gradually disappear as supply drops due to nobody investing in new cows.

Surely?

When the milk marketing board was abolished a company called milk marque was formed,it was far from perfect but it was big enough to take on the supermarkets,the then government decided it wasnt acting in a competitive way so it was forced to split up.On the other side 4 main supermarkets act like a cartel dictating to the dairies and the farmers.
The dairies have until the end of the month to withdraw the price cuts,if they dont the farmers will shut them down and the supermarkets will have no milk.

[princeperch]

Iceland sell 4 pints of semi skimmed for £1 (which perhaps to my shame I buy on a regular basis)

[sanf]

rudecherub said:

BMWBen said:

So it sounds like farmers are making poor decisions en-masse. Why don't you demand price controls in your contract with the dairy? If all farmers demanded this then there wouldn't be a problem right? If then one decided not to and got all the business, then well, that's business. Welcome to capitalism! There must be some benefit to selling the milk or you'd just slaughter/sell your herd and do something else. If you're stuck because the price has dropped since you started making the investment in the herd, then this particular situation will gradually disappear as supply drops due to nobody investing in new cows.

Surely?

But you're forgetting the EU CAP is manipulates the market by insisting we import, and subsidising small farms on the continent - we are only allowed to produce 80% of the milk the UK demands.
Then Supermarkets have pushed farmers down so that we now don't even produce that 80%.

Interesting thread, so we are saying that two main forces are causing problems -

1) The EU force us to import a certain amount of milk
2) The supermarkets are screwing the farmers on price for what the UK does produce

How can something that is supposed to be a free market trading tool force us to import? That sounds bonkers, I'm not sure how true this is, but it's one of many things that have made me look at the EU and go hmmm. I used to be very pro-European, most of that pro-European optimism seems to have gone over the past few years!!

As has been mentioned at the start of the thread, we buy milk week in, week out, we need it and to be honest I don't actually know how much we do spend on milk, so if the price went up I won't notice!

We used to have a milkman, which was great, but no longer so now have to rely on the supermarket. One of the big dairys in Lincoln closed a few years ago and is now a cleared site. It's a shame if farmers are genuinely being screwed over and I wish them well trying to get their contract altered.

[rudecherub]

sanf said:

Interesting thread, so we are saying that two main forces are causing problems -

1) The EU force us to import a certain amount of milk
2) The supermarkets are screwing the farmers on price for what the UK does produce

How can something that is supposed to be a free market trading tool force us to import? That sounds bonkers, I'm not sure how true this is, but it's one of many things that have made me look at the EU and go hmmm. I used to be very pro-European, most of that pro-European optimism seems to have gone over the past few years!!

As has been mentioned at the start of the thread, we buy milk week in, week out, we need it and to be honest I don't actually know how much we do spend on milk, so if the price went up I won't notice!

We used to have a milkman, which was great, but no longer so now have to rely on the supermarket. One of the big dairys in Lincoln closed a few years ago and is now a cleared site. It's a shame if farmers are genuinely being screwed over and I wish them well trying to get their contract altered.

Goes back to the EEC CAP ( common agricultural policy ) which paid farmers to produce, so UK being v.efficient because of relatively large farm sizes produced a lot. This meant when the EC wanted to reduce the 'Butter Mountains' it introduced quota system, where each country, and subdivided to each producer was allowed to produce x litres of milk.

UK was set app 80% of demand so we had to import, went from being self sufficient to a net importer.

A country like Portugal with no real dairy industry suddenly had a surplus of quota. EU grants meant the farmers in these countries were being paid to expand, at the same time UK farmers had to contract.

It also created a market in milk quota, where smaller producers gave up and sold their quota to larger producers - so these farmers could expand their herds.

CAP is incredibly immoral. Distorting world food prices.

[eccles]

They had one of the marketing/PR (or something like that ) men from Morrisons on the breakfast news, and when asked if the supermarket took a hit when the price of milk altered he basically said that if we didn't drop the price, people would buy their milk else where, so they had to drop the price paid to the farmer. Like a politician, he wouldn't give a straight answer to a direct question.

[dandarez]

andrew830 said:

BMWBen said:

andrew830 said:

BMWBen said:

Mark Benson said:

Murph7355 said:

Mark Benson said:

...
If it costs a farmer around 29p to produce a litre of milk which Tescos sell for 49p, then the vast majority of profit must have been taken by Tescos - there is no way milk costs 20p/litre to process and transport...

I have no idea on the actual costs. But as a layman I can easily imagine the costs to transport, process, transport again, store, package, stock and sell, plus the cost of wastage, could easily add up to that. Especially as many of those things, for milk, will be fuel intensive.

I can believe it at least as easily feeding, watering and milking cows costs 29p (living next to a farm I would think more would be the case btw).

I wonder how much profit they actually make on a litre.

From 2009;

61p - cost to farmer to produce four pints
58p - paid to farmer by processor
£1.07 - paid to processor by supermarket
£1.45 - cost to customer to buy four pints from supermarket

Farmer 3p loss
Supermarket 38p profit.

Source: DairyCo

I'm really struggling to understand the economics here... Why doesn't the farmer refuse to sell at less than 70p? Is there some dark force that makes him sell it at that price? If he's not making any money on it why is he doing it? A farmer who can't understand the very basic things about running a business gets no sympathy from me.

We understand how to run a buiness and if you look back over the last 15 years you will see how we have made huge changes.We are now much more efficent in terms of output per man and capitol used.
What the issue is you cannot start and stop a dairy farm like a factory,it takes a minimum of 2 years from when a calf is born untill it produces any milk,when you are up and running milk can only be stored for 48 hours any longer and it is thrown away.
In the mean time you still have to feed them everyday and milk them.
What the dairy farmers are calling for is new contracts with dairies so instead of being contracted for 12 months we can get out with 3 months notice,that way if one drop the price we can move to another.Thats assuming there is more than one dairy in the area.

So it sounds like farmers are making poor decisions en-masse. Why don't you demand price controls in your contract with the dairy? If all farmers demanded this then there wouldn't be a problem right? If then one decided not to and got all the business, then well, that's business. Welcome to capitalism! There must be some benefit to selling the milk or you'd just slaughter/sell your herd and do something else. If you're stuck because the price has dropped since you started making the investment in the herd, then this particular situation will gradually disappear as supply drops due to nobody investing in new cows.

Surely?

When the milk marketing board was abolished a company called milk marque was formed,it was far from perfect but it was big enough to take on the supermarkets,the then government decided it wasnt acting in a competitive way so it was forced to split up.On the other side 4 main supermarkets act like a cartel dictating to the dairies and the farmers.
The dairies have until the end of the month to withdraw the price cuts,if they dont the farmers will shut them down and the supermarkets will have no milk.

And these same supermarkets all promote Fairtrade so that it gives help to overseas farmers, some of whom are dubious. Every town almost in the UK is/has become a 'Fairtrade' town.
Strange. Where is the 'fair' trade with 'our' own farmers?

[BMWBen]

andrew830 said:

BMWBen said:

andrew830 said:

BMWBen said:

Mark Benson said:

Murph7355 said:

Mark Benson said:

...
If it costs a farmer around 29p to produce a litre of milk which Tescos sell for 49p, then the vast majority of profit must have been taken by Tescos - there is no way milk costs 20p/litre to process and transport...

I have no idea on the actual costs. But as a layman I can easily imagine the costs to transport, process, transport again, store, package, stock and sell, plus the cost of wastage, could easily add up to that. Especially as many of those things, for milk, will be fuel intensive.

I can believe it at least as easily feeding, watering and milking cows costs 29p (living next to a farm I would think more would be the case btw).

I wonder how much profit they actually make on a litre.

From 2009;

61p - cost to farmer to produce four pints
58p - paid to farmer by processor
£1.07 - paid to processor by supermarket
£1.45 - cost to customer to buy four pints from supermarket

Farmer 3p loss
Supermarket 38p profit.

Source: DairyCo

I'm really struggling to understand the economics here... Why doesn't the farmer refuse to sell at less than 70p? Is there some dark force that makes him sell it at that price? If he's not making any money on it why is he doing it? A farmer who can't understand the very basic things about running a business gets no sympathy from me.

We understand how to run a buiness and if you look back over the last 15 years you will see how we have made huge changes.We are now much more efficent in terms of output per man and capitol used.
What the issue is you cannot start and stop a dairy farm like a factory,it takes a minimum of 2 years from when a calf is born untill it produces any milk,when you are up and running milk can only be stored for 48 hours any longer and it is thrown away.
In the mean time you still have to feed them everyday and milk them.
What the dairy farmers are calling for is new contracts with dairies so instead of being contracted for 12 months we can get out with 3 months notice,that way if one drop the price we can move to another.Thats assuming there is more than one dairy in the area.

So it sounds like farmers are making poor decisions en-masse. Why don't you demand price controls in your contract with the dairy? If all farmers demanded this then there wouldn't be a problem right? If then one decided not to and got all the business, then well, that's business. Welcome to capitalism! There must be some benefit to selling the milk or you'd just slaughter/sell your herd and do something else. If you're stuck because the price has dropped since you started making the investment in the herd, then this particular situation will gradually disappear as supply drops due to nobody investing in new cows.

Surely?

When the milk marketing board was abolished a company called milk marque was formed,it was far from perfect but it was big enough to take on the supermarkets,the then government decided it wasnt acting in a competitive way so it was forced to split up.On the other side 4 main supermarkets act like a cartel dictating to the dairies and the farmers.
The dairies have until the end of the month to withdraw the price cuts,if they dont the farmers will shut them down and the supermarkets will have no milk.

Sounds good - keep us updated

[Murph7355]

Mark Benson said:

From 2009;

61p - cost to farmer to produce four pints
58p - paid to farmer by processor
£1.07 - paid to processor by supermarket
£1.45 - cost to customer to buy four pints from supermarket

Farmer 3p loss
Supermarket 38p profit.

Source: DairyCo

Those figures don't include the costs of the processor and the supermarket, so unless those figures exist from DairyCo and weren't published, the only figure that looks definitely mathematically correct is the farmer's loss.

As others have said, I cannot see why farmers don't force better contracts. Perhaps by working more cooperatively (fight the supermarkets at their own game using the same methods).

I also have no idea what "small" is in relation to production such that the supermarkets can strong arm. I would have thought if a farmer were small enough, there would be other methods of selling their produce without getting screwed over by a supermarket. There are two middle men in the chain you noted, both of whom are assumed to be taking a healthy chunk of profit.

Cut them out and offer the product markedly cheaper and offer it locally. If you can undercut the supermarkets in your area by 30+% I would imagine product would walk out of the door. Especially if the whole "local" angle was played and perhaps other quality products were offered...

If you can't, maybe the links in the chain aren't making the profit you assume?

[Chrisw666]

Surely if farmers are making a loss they can all tell the supermarkets to pay more or get nothing.

Eventually one will pay a fair price and the others will try and outbid them or will lose out.

Or will we just see an influx of foreign cows coming over and stealing all of our cows jobs?

[Amateurish]

Mr Sparkle said:

Mark Benson said:

From 2009;

61p - cost to farmer to produce four pints
58p - paid to farmer by processor
£1.07 - paid to processor by supermarket
£1.45 - cost to customer to buy four pints from supermarket

Farmer 3p loss
Supermarket 38p profit.

Source: DairyCo

That doesn't take into account the overheads of the supermarket in selling the milk so the profit is less.

And as posted above, in most supermarkets you can buy four pints for £1.

[Murph7355]

Amateurish said:

And as posted above, in most supermarkets you can buy four pints for £1.

Crap. Supermarkets are losing 7p for every 4pts!

It's the processors...

(Out of interest, is the price of milk protected in any way? Other than by a notion of a cartel?)