The Dairy Crisis – should we be scaling up operations?

It is not often that farming makes the headlines in the UK but lately the mainstream media haven’t been able to avoid the anger that dairy farmers have been expressing over the price they are being paid for their milk. Protestors have been removing milk from supermarket shelves and one set of protestors recently resorted to bringing a couple of Friesian cattle in to a supermarket in Stafford to make their point.

It is estimated to cost anything between 28 and 32p to produce a litre of milk in the UK yet many farmers are being paid much less than this, typically 23p or 24p per litre. This is about 25% less than they were being paid a year ago. The problem, so say the middle men and retailers, is that demand is dropping at a time when supply has increased enormously. Muller UK and Ireland have said that British dairy farmers have increased the milk supply by 1.6billion litres in the last 12 months compared to the same period two years ago. Now I would never dream of calling myself an economist, but the basic idea behind supply and demand is something that I can understand. The issue we have is that milk commodities, like other commodities, are part of a world market and the downturn we are experiencing is partly a result of China’s slowing economy. It is not just British farmers who are suffering. China was a main reason behind the surge we have seen in milk prices over the past decade but nothing can last forever and it now looks like we are entering a more difficult period in the global marketplace for dairy.

New Zealand, which accounts for producing 30% of all exported milk globally, has been hit heavily by the Chinese downturn. However, the Kiwis are more likely to be able to weather the storm. They are lucky to have lower production costs and higher yields due to their natural geography and a longer season of plentiful supplies of grass than the UK. The so called ‘New Zealand’ system of dairying enables the cows to stay outside on pasture all year round. This is often impossible in Britain due to the more difficult winters we face. Most dairy farms in Britain are small tenant farms of just a few hundred acres but still have to fit within the global system. As well as the fall in Chinese demand, the import bans Russia has declared on products coming from Europe have also affected prices and created ‘cheese mountains’. If it wasn’t for European subsidies British dairy farmers would be facing an even more significant crisis. Nonetheless, every month 60 to 70 UK dairy farmers leave the industry. Since 2002 more than half of them have quit. It is clear that the current model is not sustainable and encourages boom and bust for smaller farmers. Some economists say that this is not a problem and we shouldn’t be supporting smaller farmers who are unable to balance the books in the first place.

However, does this mean and should it mean that we should be scaling up production and let the smaller producers go out of business in favour of larger units that are more cost efficient? Ten or fifteen years ago, when my own family left the dairy industry after generations of milking cows, I may have said that this was the future for certain. It seemed that if there was indeed a future for dairy in the UK it would be for huge herds shut up in larger and larger barns but it has become clear, as farmers using many different models have weathered the various storms and pulled through to the other side, that there is no such thing as one successful model for dairy farming. Smaller farms can survive if they think a bit outside the box. The biggest issue this year has been the removal of milk quotas, meaning a completely free market in milk. This, many will argue, is a principal reason why production has increased and the fall in prices. Farmers face a new world and need to change with the times if they are to survive in business. For many, this will not be possible and they will have to look to new areas to specialise in, as my only family did when the business was reappraised following the sale of the herd.

It is clear that, on a global level, the way that cows are milked, housed, fed etc will see huge change over the next couple of generations. A booming global population and economy will, predictably, unless there is a radical change in preferred diet, lead to a rise in demand for dairy products. In China, for example, there is the prospect of the largest dairying operation in the world being constructed, housing 100,000 head of cattle. This dwarfs the huge operation of 40,000 head already operational, seen in the video below.

I doubt we will see many units holding tens of thousands of cows in the UK in the near future but it will certainly happen, that I have no doubt. Enormous housed systems are often demonised (I have doubts to the ethics behind them myself) but there are also benefits which must be stated. Animal welfare is held of the utmost importance and there are often dedicated individuals whose job it is to monitor and administer animal health and welfare management. Indoor systems allow for problems to be spotted and dealt with more quickly. Proponents of larger units also point to food security and providing the consumer with sustainable product, vital when looking ahead to future marketplaces. Some also say that methane production is lower with larger indoor units than extensive systems due to increased efficiency in production. Nonetheless, grass based systems (still the most common system in Britain), where cows graze on pasture during the spring and summer and are housed for up to 6 months of the year will still play a huge role in the future I believe, even if this means supporting the system through subsidy. Grazing has multiple benefits, including environmental management, that indoor systems by the very nature cannot provide, and it is important we do not lose grass based systems for this reason. Some farmers in Britain have moved across to the extensively grazed ‘New Zealand’ system which has its own benefits, although with British weather conditions it is more difficult than for producers in the southern hemisphere. Small dairy farms also provide more localised jobs for the rural economy. Rather than employees traveling to fewer larger units, smaller farms can keep individual village economies alive, keeping people within the villages and discouraging decline or abandonment.

In conclusion, although to meet the food security needs of the future we will need to scale up production, and larger units are an efficient way of doing this, we should not forget the cultural and environmental benefits that smaller production systems provide. Much of Britain’s landscape has been shaped by small dairy farms over the centuries and the grass fed model must have a future in managing our landscapes. However, a move towards protectionism would not necessarily help farmers in the longer term and we must embrace the free market economics we are faced with and weather the storms that pass. Critically, although public understanding of farming has improved slightly in recent years, thanks partly to a concerted effort by the farming industry to sell itself, including initiatives such as Open Farm Sunday, consumers must understand the problems that farmers can find themselves in financially, due to the global market, and evident at the moment through the milk protests. I am optimistic for the future of the industry but foresee many more dairy farmers going out of business in this current crisis before we reach some sort of stability, necessary to move forward.