Thursday 12 July 2012

The price and cost of milk - how to help the dairy farmers?

Over 2,500 dairy farmers descended on Westminster yesterday to protest against a drop in the wholesale price of milk whereby they will receive upto 2p per litre less for their milk, effective from August 1st.

Many farmers will now be receiving less than 25p per litre, which given that the estimated production is 30p per litre, - making it a loss-making business - hence the crisis and the protest.

Who is to blame and what can be done? As ever the answers to either of these questions are not straightforward, but here are some humble observations from us at Farm Direct.

The bar chart below illustrates an estimate of what the cost of producing milk is, and how the rest of the money that you pay is split between farmers, processors and supermarkets.

This chart does need to come with some significant caveats: 1, they are our own estimated numbers (but based on circulated & accessible data), 2, different farmers get paid different sums depending on who they supply to.

But plainly with farmers hardly getting enough to cover the cost of production, it is clear that the vast majority of the available margin is not going to the farmers.

In our view, retailers are greedy for margin as the bar-chart above ilustrates - and we think that they take a unfairly high proportion of the price that consumers pay for their food, relative to the amount of value that they add in providing us with it.

But tempting as it is to lay the blame at their door, we think it is just as much the consumers' fault. For we sought, created and now enjoy a world of enormous consumer choice, where we make decisions about what food we want to consume at the drop of a hat, and we can choose any number of outlets that can provide us with what we want at - we expect food to be widely available at all times, and generally choose the shops that provide it at the best possible price - especially a product like milk that we treat as very much a commodity.

Food as a commodity is a cliché, but in the case of milk it is particularly and depressingly true - we even demand that it is homogenised, so that it all looks the same! Oh, and we expect it to be as cheap as water or beer.

It shouldn't surprise us therefore that this choice, accessibility and superlative value comes at a price - and that in a demand led world, it is the party furthest from the end consumer that gets the toughest deal.

It seems to us that a "fair price for farmers" should focus around an agreement that gives them a percentage of the margin POST direct production costs. The bar chart above demonstrates that they currently receive very very little of that, and that the retailer keeps it all for themselves. This would at least provide an incentive for retailers to push up the price of a product that it entirely undervalued!

As consumers, all we can do is start trying to choose differently.

Advantages of buying our Ivy House Farm Dairy milk

1, It is single herd dairy - meaning it comes from the same farm and herd each week - the Bowles family who produce it are entirely contactable (01373 830 957) and you can therefore get great knowledge and comfort about exactly how their products are produced.

2, It is unhomogenised, and so hasnt been mucked around with for cosmetic purposes, and is therefore easier to digest

3, Ivy House process their own milk and we buy it directly off them. they get over 71% your money, we get 29%.

4, it is a delicious product.

Disadvantages of buying our Ivy House Farm Dairy Milk?

1, it is approximately twice the price of basic supermarket milk - which if you consumer 2 litres per week, means that it will cost you around at extra 110p per week.

Now is that so bad?

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