Dairy in despair

High-street coffee shops and food chains have started to reopen their doors. But some of the dairy farmers who supply them are on the brink of closing theirs for good. By David Burrows.

“We have a major problem,” Patrick Holden, dairy farmer and chief executive of the Sustainable Food Trust, told me on March 20th. Demand for his milk (and all the other products made from it) had evaporated almost overnight as hospitality businesses up and down the country began shutting up shop. Six weeks on and videos of dairy farmers pouring milk away have gone viral. One million litres were thrown away in the middle two weeks of April, according to the Royal Association of British Dairy Farmers (RABDF). And the government’s solution, Footprint understands, is for producers to go further into their overdrafts.

But it’s not only farmers that should be crying over this spilt milk. Grocery shoppers may guzzle far more of the white stuff (in all its forms) than diners and coffee shop-goers, but foodservice businesses are heavily reliant on dairy products. Almost 1.3 billion hot drinks with milk are served in the UK every year, with another 244m cold dairy drinks, according to figures compiled by MCA/NPD in 2018 and listed on levy body AHDB’s website. Almost 6.5 billion meals or products with dairy in were also sold. In quick-service coffee shops, dairy is in 72% of purchases.

Where did ministers think all that milk, cheese and ice cream would go? Did they think we’d all start making the kind of super-sized coffees the likes of Starbucks offer (almost half a litre for the medium-sized “grande” latte) at home? Quite possibly.

AHDB estimated that a 10% uplift in retail sales would be enough to offset the losses in foodservice. This was based on a milk volume of 8m litres. But this figure is “nowhere near accurate”, according to Ian Potter, a milk analyst, who said it should be “closer to 20m litres”. The retail uplift also hasn’t materialised. Contrary to what Defra officials and ministers might think: you can’t simply turn off the tap in foodservice and redirect supplies to grocery. “There are about 2m litres of milk a day that have not found a home in the retail market,” explained RABDF chairman Peter Alvis.

Representatives from the likes of the RABDF and NFU have been briefing the farming press using terms such as “market collapse”. Milk prices continue to fall and there are tales of farmers receiving texts in the afternoon to let them know that their evening collections have been cancelled. “Dairy farmers are on their knees,” tweeted Neil Parish, chair of the Environment, Food and Rural Affairs committee. But what the government wants to know is: how many?

AHDB reckons that of 9,200 dairy farmers: 500 had collections cancelled, 500 had payments deferred, 2,200 have been asked to reduce milk output, and 700 have had the volume they get paid a full price on reduced. Price reductions range from 0.5p per litre (ppl) to 4ppl or higher. The cost of these cuts to the sector has been estimated at £7m in April; this month the figure will be closer to £13m. That the sector is heading into the spring peak for production has made everyone “nervous” about what will happen, said AHDB’s dairy specialist Chris Gooderham on BBC Radio 4’s Farming Today last week.

But George Eustice, the environment secretary, is yet to be convinced this merits further intervention. In a recent meeting with farm representatives, the advice was for producers to go deeper into their overdrafts, a source close to the discussions told me. The BBC has also been reporting that farming representatives have warned officials that 80,000 cows could be culled (the national herd is around 2m).

Those figures are apparently debatable. Lack of reliable data has actually been dairy’s undoing during recent discussions: for example, DEFRA officials have (rightly) been demanding “accurate and credible supportive data” to back up industry claims of a crisis. The NFU hasn’t helped itself: the number of dairy farmers suffering severe financial pressure is thought to be around 550 and not the 2,000 the union estimated. Most of those under immediate threat supply Freshways and Medina – not surprisingly, these are processors dedicated to the foodservice sector.

Freshways has found itself in the crosshairs of the Daily Mail. The paper has run three stories in recent weeks, focusing on its “fat cat” owner. Farmers have been told to pour milk away, while the company has bought cheaper milk on the spot market (which represents the value of surplus milk in the UK) and then hiked its prices to care homes – reportedly. This is gold dust for the Daily Mail.

Freshways’ customers – which include the likes of Costa, Starbucks, British Airways and P&O Cruises – have been less than impressed. Potter reported that some are “allegedly exploring how they can distance themselves from the processor’s constant negative press coverage. For sure, most retailers, food service and others are keen that throughout the Covid-19 period processors treat all their loyal supplying farmers fairly and responsibly,” he wrote.

Some would argue the dairy supply chain has been anything but fair for a very long time. Footprint raised concerns in 2012, noting that there was no transparency in the price being paid by coffee shop chains and caterers. Supermarkets have also faced down a number of campaigns. Freshways managing director Bali Nijjar hit back at accusations of profiteering. “The biggest issue in all of this is the general price of milk,” he wrote in a statement published on the company’s website. “At £1.10 for 4pnts [sic], it is the cheapest liquid drink per litre available. Water costs more. That’s the crime.”

So what happens next? There is an expectation that something has to give this week, as the spring peak in production looms. A “hardship fund” has been mooted, but this will do little more than paper over the cracks that have been there for years. As more high-street coffee shops and fast-food chains start to reopen their doors in the coming weeks, they could find some of the dairy farmers who supplied them have closed theirs for good.

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