14 July 2015
Article by Katy Orford, National Assembly for Wales Research Service
Prices paid to Welsh farmers for milk and red meat are continuing to decline. A variety of factors have contributed to a perfect storm resulting in UK farmgate milk prices standing at 24.06 pence per litre (ppl) (May 2015), the lowest price since May 2012. The average weekly GB market price for lamb currently stands at 157.56 p/kg, this compares to 199.21 p/kg in the same week last year (20% decrease). On Wednesday 15 July the Assembly will be debating the issues currently facing the red meat and dairy sectors in Wales.
This post follows on from previous posts on the volatility of the dairy industry and the Welsh Government’s proposed action plan for the dairy sector. Over the last fortnight the dairy industry has faced further challenges with both First Milk and Arla Foods announcing cuts to their standard litre prices paid to farmers. From 1 July 2015, First Milk has reduced standard litre price by 1ppl. Arla has announced that it will be reducing payments for milk by 1ppl from 1 August 2015. NFU Cymru have said that the majority of Welsh dairy farmers will consequently be receiving milk prices below the cost of production.
This reduction in prices paid by milk processers comes at a time of reduced global demand. Russia plans to extend a ban (introduced last August) on European food imports, including milk and dairy products, for another year. Russia accounted for almost a quarter of EU agri-food exports in 2013. Overall EU agri-food exports have decreased by 40% from August 2014 and April 2015. Demand for milk powder from major buyers such as China has also fallen.
This reduced demand coincides with the end of milk production quotas in the EU in March this year, after over 30 years of operation. The Commission’s aim in ending quotas is to boost exports from Europe, however there are fears that this will disproportionately harm vulnerable producers such as those in remote areas.
MEPs have called on the European Commission to consider taking action through a number of interventions, including raising the intervention price to support farmers during the crisis. The EU’s farm lobby group Copa-Cogeca joined MEP calls saying ‘more realistic safety nets are needed to put an effective floor in the market’.
EU farm Commissioner, Phil Hogan, rejected MEPs’ appeal to raise the intervention price saying that existing aid tools were sufficient. He also stated that intervention costs would give the wrong message in attempt to move towards a market driven policy. Instead, Hogan argued that the priority should be to look for more market opportunities abroad, improve contracts for farmers and, in the short-term, assist farms hit the most by Russia’s food import ban.
Red meat industry
Welsh lamb prices currently stand at 157.56 p/kg compared to 199.21p/kg in the same week last year. The strength of sterling and the Eurozone crisis has had a negative impact on UK export markets. NFU Cymru has raised the question as to who is profiting from lamb. The English Agriculture and Horticulture Development Board (AHDB) show that the price for consumers has not fallen as much as the farmer’s share. Between the spring of 2014 and 2015, farmers’ share of the retail price for lamb has dropped from around 60% to 50%. Lyndon Edwards, member of the NFU Cymru Livestock Board said:
Farmers need a sustainable price for their product that encourages them to invest in future production, returns must be delivered to everyone throughout the supply chain so that the consumer can continue to enjoy and savour PGI Welsh lamb in years to come.
Source: Hybu Cig Cymru
Red meat levy
There have been calls to strengthening domestic supply chains in Wales through the reform of the red meat levy. This is a levy paid by producers and slaughters/exporters on all cattle, sheep and pigs slaughtered in Great Britain to the red meat levy boards to pay for promoting and marketing red meat. In Wales the levy is collected by (HCC). If Welsh livestock is sent for slaughter in England, the levy is collected in England and sent to the English AHDB, rather than HCC. Some producers and levy boards have stated that this is unfair as the levies paid by Welsh producers are being used to fund the promotion of red meat from England, and vice versa. Consequently the levy boards from Wales, England and Scotland have formed a Read Meat Industry Forum to discuss the issues and make suggestions for changes to the process. In order to further promote Welsh produce, the Welsh Government published a Food and Drink Action Plan last year.
For further information on the Welsh food production industry please see other Research Service publications: