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Conditions Right for Milk Price Momentum to Build

19 July 2013
National Farmers Union, Scotland

UK - NFU Scotland believes soaring wholesale prices and future prospects for milk and dairy products are giving milk processors the ideal opportunity to send clear signals to dairy farmers that their produce is wanted.

While many commodity prices including powder and cream are more than 60 per cent up on the year, farmgate prices have increased by little more than 10 per cent in the same period, giving ample scope for further significant increases back to producers.

The recent Highland Show and Livestock event provided NFUS with a platform to meet all major processors and retailers and push the point that, to drive confidence in dairy production at farm level, the momentum behind milk prices must build.

NFU Scotland’s Milk Committee chairman, Gary Mitchell said: "Positive milk price moves are both wholly justifiable and necessary and I firmly believe they will come. The key issue is when. Confidence levels on Scottish dairy farms are low, the past 18 months have been a genuine struggle, but if we are to rebuild and tap into the genuine potential for dairy that exists in Scotland, then milk price moves must come sooner rather than later.

"Our own price formula based on the price indicators AMPE (Actual Milk Price Equivalent) and MCVE (Milk for Cheese Equivalent) clearly indicates that milk prices should be continuing to move up and that 34p per litre is deliverable based on current commodity markets and production levels.

"AMPE is now 65 per cent up on this time last year to 38.80p and MCVE, at 36.65p, is up 20 per cent on the year. Cream values – often used as an excuse for curbing liquid milk increases – are now at £1,690 per tonne - up 65 per cent in 12 months. These huge lifts in commodity prices are in stark contrast to the 10 per cent increase in the average farmgate price for milk. This simple confirms that the price being paid to many farmers is still out of step and the scope for further substantial increases is there.

"It is in the interests of all in the supply chain to share the benefits of strong prices now rather than later. We will only tap in to the potential markets for dairy products if we all work to create a confident, well invested sector starting at the farmgate.

"These have been difficult times for dairy farmers, production levels are recovering but feed prices are likely to remain volatile from now until the autumn. It is in processors’ interests that they share their market returns with producers at this time. Morale for some remains low, but all producers are well aware that prices should rise further on the back of current markets, and this is essential to instil confidence.

"We need that confidence at farm level if we are to fulfil our potential to produce milk and dairy products here in Scotland. The forthcoming Scottish Dairy review will cover the entire supply chain and will look at opportunities to grow and widen markets. Its success will be founded on trust in the supply chain to ensure a fairer share of risk and reward than is currently being delivered."

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