UK: Dairy prices set to rise due to runaway inflation

A new report from Kite Consulting highlights the urgent need for higher dairy consumer prices in the UK. This suggests that the era of cheap food is over.

Significant cost increases at the farm and MILK processor level mean that price increases must be passed along the dairy chain to consumers to avoid migrating milk supply to more expensive EXPORT markets, according to a new report.

According to Kite, on-farm cost inflation would result in a break-even milk price in 2022-2023 of between 33p and 34p ($0.45 to $0.46) at current costs. Moreover, production costs for dairy processing have increased by 15% and could potentially be as high as 70%, depending on the product mix and how the processor is connected to the energy market.

After analyzing a number of different factors, the report concludes that, depending on the scenario, block butter prices should be between £3,975 and £4,200 per ton (US$5,419 to $5,725 ) rather than staying at the £3,200 average. sterling per ton ($4,362); and soft cheddar should cost between £3,425 and £3,625 per tonne ($4,669 to $4,940) rather than the current £3,000 per tonne ($4,089).

John Allen, Managing Partner at Kite, said: “Our analysis demonstrates the magnitude and relevance of inflationary price pressures in the dairy sector. With costs rising exponentially and margins already tight at the farm and processor level, it is now necessary to reset price levels throughout the dairy production chain, with price increases being passed on to consumers. Farmers and processors simply cannot bear these costs.

“Unless there is a change in consumer prices for dairy products, we forecast that milk production will fall and UK dairy production will become increasingly oriented towards serving export markets rather than domestic retail and food service markets with potentially low margins.

“But it's not just about the price. This inflationary trend comes at a time when supply chain relationships are more important than ever. Retailers and processors need to work more closely with farmers than ever to address sustainability issues, especially with the urgent need to mitigate climate change. Success in this area requires long-term relationships built on trust. So it is critical that we see a review of dairy consumer prices to ensure the sustainability that UK consumers have been so grateful for during the covid lockdown and so that UK consumers can continue to enjoy organic British dairy going forward.”

PioneerProduct based on dairyreporter.com