The dairy industry in the U.K. may be able to look forward to a less volatile, less pressure-driven market, with Sainsbury's new pledge to work directly with hundreds of dairy farmers. Announced in October by (ITALIC)Dairy Reporter.com(ITALIC), the deal, among other changes in the industry, should help to stabilize the supply chain and increase milk prices for producers. The Milk Development Council's (MDC) new Supply Chain Margins Report says that pressure on milk producers there may ease off next year.
Cuts to farmgate milk prices this year are likely to see 2006 remembered as a gloomy year for U.K.-based farmers, but some stability may return in 2007, according to the report. The news followed a partnership announcement by Sainsbury's, which formed a new collaboration with farmers, and England's National Farmers' Union (NFU) said it would collect invoices to reveal the true extent of producer losses.
Concerns surrounding the county's milk supply system has put unsustainable pressure on farmers. Nearly three farmers per day have left the sector in the last year, some estimates say.
Reduced market support and prices under the EU Common Agricultural Policy reform made milk prices more volatile in 2006, notes Ken Boyns, head of economics at the MDC.
"The period of intense change may be coming to an end in the short-term, and those who are focusing on improving their farm productivity and maximizing the price of their milk at the moment may start to see better returns compared to the present," Boyns says. Farmers may also be helped by greater efforts to make the supply chain more stable.
Dairy Crest, a top U.K. dairy firm, indicates that it would raise the price it pays to direct milk suppliers by 0.2 pence/L and Sainsbury's, which recently signed an 18-month supply deal with Wiseman and Dairy Crest, said it would work directly with 450 farmers, linked to processing firms Robert Wiseman and Dairy Crest, in a new dairy development group. The retailer sells about 420 million L of milk each year. Both dairy firms, the MDC and the NFU welcomed the move as a way of bringing the supply chain closer together.