Supermarkets have estranged relationships with many of their suppliers – as the Groceries Code Adjudicator's investigation into Tesco has just confirmed. Food producers have had a particularly tough time of it – last summer dairy farmers campaigned vociferously against the price slashing of milk amid competition pressure. Now there’s more bad news on the horizon according to Defra’s latest farm income forecast, which predicts steep falls across nearly all the farming sectors for the year to February.
Dairy farmers' average incomes are predicted to drop by 45% £46,500, while pig farms, cereal and general cropping are also taking a hit – down 46%, 24% and 17% respectively. The ongoing impact of weaker prices (thanks to abundant global supplies) has played its part, along with falling demand and a stronger pound. Such sharp drops will be a real concern for cash flow problems, which will likely have a knock-on impact across the agricultural and food sector.
There was wide variation in milk prices, according to Defra, though at a UK level the average farmgate milk price was around 20% lower from March-November 2015 compared with 2014. Dairy farmers’ earnings are now at the lowest they've been in nine years. It has been a Europe-wide struggle too – a global oversupply of milk, slowing demand in China and Russia’s retaliation to sanctions with a ban on EU dairy all playing their part.
‘Given the low prices we have witnessed across the industry it is no surprise that we have seen sharp fall in incomes. But the figures still make sobering reading,’ said Meurig Raymond, president of the NFU. 'Low profitability and falling confidence were, he added, ‘the antithesis of a sustainable framework for the UK food industry’.
Late payments have been a bone of contention for many suppliers and this severe fall in income for much of the farming sector will be an extra headache for farmers already dealing with cash flow issues. Raymond feels the solutions are out there – ‘forward contracts, formula pricing, supply chain integration’, but they currently characterise a ‘disappointingly small proportion’ of the food supply chain.
Farmers are used to dealing with significantly fluctuating market conditions, but the last few years have been particularly challenging. Until more substantial measures are taken, it's going to continue to be a rough ride for many of the UK's farmers.