Saturday - Jan 20, 2018

Is The Dairy Farming Industry On The Brink Of Collapse?


Farming has always been at the heart of our economy. The ability to grow and distribute our own food is, perhaps, the oldest job in history. Yet this year it finds itself on the precipice of a cliff. The once rock-solid industry is being threatened by so many market forces that it is struggling to survive. Nowhere is this more relevant than the dairy industry which finds itself on the brink of collapse.

The supermarket wars are driving prices down and world market shifts are forcing up the cost of business. This is a difficult combination of factors and dairy farmers have found themselves right in the middle of the problem. Thanks to this, and other factors, we now have a global milk surplus. The supply is far outreaching demand. It is lowering prices and building up stockpiles.

In a world where small-time farmers struggle to do business, the dairy industry may be the first fatal casualty. In the USA and the UK, the family farm has all-but vanished. In its place are giant agribusinesses. These may be able to shoulder the weight of a loss in the dairy sector. But, family farmers who rely on dairy exclusively cannot. This could be the final nail in the coffin for small farms. In the UK there has already been a huge cut in dairy farms. Over the last ten years their numbers have been cut in half. They’ve gone from 20,000 farms to 10,000 with more dropping like flies. In December alone they lost another 60.

Why is this happening? Well, consider that a pint of milk now costs less than a bottle of water and you begin to get an idea.

There are a number of interconnected factors affecting this collapse. However, supermarket price wars are at the core of the problem. All supermarkets are fighting to provide the cheapest prices. They want the biggest bargains to attract the loyal, repeat customers. The last ten years has seen a huge rise in discount and budget supermarkets. They’re all driving down the cost of milk in an attempt to appeal to customers.

Milk has always been a traditional, essential product. Its very purpose is to be accessible and relatively cheap. But, supermarkets are taking this to the extreme. A pint is now cheaper than bottled water. When you consider the vast industry involved, you can understand the devastation this causes. Dairy farmers have always battled against tough profit margins. The sheer cost of running machinery, feeding cows and maintaining acres of land is expensive. But now it has become unsustainable.

Supermarkets are insisting that their price cuts are being made using their own profits. Unfortunately, farmers are telling a different story. They are regularly making a loss on every pint of milk distributed. Since the prices dipped below profit margins last May, some farmers in the UK have reported losses of £1 million.

The supermarket wars are the tipping point that has finally pushed this problem over the edge. But, it has been building for quite some time. Agriculture commentators have been predicting this crash for a decade.

A number of years ago, farming organisations began to set their sights beyond their typical markets. The world was growing larger and more connected. It seemed to open up more trade routes and more possibilities. Countries in the EU and USA were well placed to increase production and import into these markets. They had vast agribusiness infrastructure. Machinery was improving year on year and production was increasing. The time was right to scale up even further.

Farming organisations had their eyes on Russia and China. They pinpointed these countries as the next big markets for milk, cheese and other farm produce. Anticipating the global rise of these countries, farmers were told to go into overdrive. They were advised to increase production and invest in better equipment. They were told that these markets were about to open up and would be theirs for the taking.

Unfortunately, it hasn’t planned out like that. Instead of welcoming western produce, it has been largely ignored. Last year, Russia put a ban on all EU produce. This effectively cut the expected export market from UK, Italy, Germany and France. China hasn’t banned produce, but organisations vastly underestimated the Chinese agriculture industry. 50% of China’s available workforce is employed in agriculture. Farming makes up 12% of their GDP. They are now the biggest country in the world when it comes to agriculture.

Now they don’t need Western produce. And they are exporting into previously safe territories themselves. China have begun a land grab on existing markets.

What we are left with is a global surplus of produce, particularly dairy.

There is another factor that is squeezing farmers from another direction. There is a global rise in the cost of animal feed. The price of wheat, corn and other staples has doubled over the last few years. This is forcing up the cost of doing business. This is on top of the other costs involved with farming. Our friends at FarmTrader tell us that farmers have to invest in machinery, insurance and other vehicles.

Quite simply, the cost of farming is going up and the price at market is coming down. Farmers are being squeezed from the top and the bottom. It is an unsustainable system that cannot continue.

Naturally, something must be done to slow this process down and reverse it. We risk losing yet more farms who cannot afford to stay afloat. The trouble is that supermarkets will always search for lower prices. Slowly they will turn to China – the biggest farmer in the world – for even cheaper milk. The interconnected world is troubling for local farmers.

This isn’t just about farming. Of course, there are plenty of related industries that rely on farming. Transportation and machinery manufacturers are just two examples.

The farming industry is on the edge of a cliff and the dairy farmers are already jumping. It’s time to raise awareness and turn this problem around.