A big part of the problem is soaring dairy prices. The cost of milk, cheese and eggs (supermarket staples) soared 9.5% in the 12 months to April. Whole milk prices rose more than 12%.
More pain may lie ahead, according to a recent analysis by Kite Consulting, which specialises in the UK dairy industry. A standard four-pint milk carton will cost between £1.10 ($1.36) and £1.20 ($1.49) from 2020 to 2021. It could hit £1.70 ($2.11) this year, the consultancy said. This would mark a more than 50% increase at the bottom end of the range.
Why the dramatic spike? Part of this comes down to supply and demand. Covid-19 has pushed up the prices of many commodities as lockdowns have distorted global supply chains. This has put pressure on milk production as farmers deal with more expensive fertilizers and animal feeds and new environmental rules. At the same time, demand for dairy products has grown during the recovery, especially in developing countries.
Then came the invasion of Ukraine, which further disrupted access to products such as wheat, fertilizer and fuel, again driving up costs for dairy farmers.
“War is the cause of the major problems right now,” said John Allen, managing partner at Kite Consulting.
One of the biggest problems is the soaring price of nitrogen fertilizer, which is critical to dairy farming.
“If you compare April 2022 with April 2021, you’ll see that fertilizer prices are almost four times what they were before,” said Robert Craig, who runs three dairy farms in northern England and owns about 1,500 cows.
If farmers reduce how much fertilizer they use, they won’t be able to grow enough grass to feed their cows when grazing. The recent lack of rain in England has compounded the problem.
Jessica Langton, who helps run a 100-cow family farm in Derbyshire, has concerns.
“Most of our income comes from milk, so we need to produce a lot of grass to feed [cows] All summer and winter,” she said. Milk from her family’s farm is used to make cheddar.
Langton noted that many other farms also rely on fertilizer to grow wheat, corn and barley to feed their cows. If they cannot produce enough product, they may be forced to sell some of the herd, either for slaughter or to other dairy farmers.
Fertilizer prices had been rising before the Ukrainian invasion due to a surge in natural gas prices last year. Nitrogen-based fertilizers such as urea and ammonium nitrate are produced from natural gas.
The invasion of Ukraine made things worse. Russia and its ally Belarus are major exporters of fertilizers, but now few buyers are willing to touch their supplies. The Independent Commodity Intelligence Service estimates that 18% of the UK’s urea and 7% of ammonium nitrate come from Russia.
“Russia is such a big fertilizer exporter and they have so many sanctions,” said ICIS analyst Deepika Thapliyal. “This will make supply very tight.”
Prices of fuel and animal feed
Energy prices are not just a factor in fertilizer production. Fuel is also essential to running a farm, as tractors and other machines can run 16 to 20 hours a day.
Langton estimates that the cost of diesel fuel used in her family has more than doubled compared to last year.
The price of animal feed for dairy cows that supplement their diets has also soared. The National Farmers’ Union estimates that feed prices have risen by 70% in the past two years.
Allen of Kite Consulting said wheat, corn and soybeans are the benchmarks for feed prices.
Farmer Craig said Ukraine produces the “vast majority” of feed for the UK’s organic cows. Now, the product is almost inaccessible.
how it cheers up
Grocery stores won’t raise prices on milk and other dairy products in line with dramatic forecasts. Stores are wary of raising prices on essentials so as not to scare off customers.
“Some retailers will be prepared to take much lower profits, if not potentially small losses, [to] make [sure] People come in through the door,” said Tom Holder, spokesman for the British Retail Consortium. “No one wants to go to a supermarket with overpriced milk.
But farmers like Langton and Craig worry that the incentive to hurt their businesses won’t go away. Many also have to contend with rising labor and transportation costs.
Kite Consulting estimates that total production costs for dairy farmers will rise by 29% from 2021 to early 2023. At the same time, government subsidies are falling, making it more difficult to make ends meet.
“If we hadn’t seen milk prices rise with hyperinflation, we could have seen a lot of dairy farms in the UK get out of the industry,” said Langton, referring to where her family could sell the milk to processors. price.
Demand is expected to start to fall as prices are pushed up to help farmers stay in business, allowing the market to rebalance itself. But when that moment will come remains an anxiety-inducing unknown.
“I don’t think it’s too expensive,” said Allen of Kite Consulting.