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Milk crisis exposes tension in UK policy

The milk crisis rumbles on with dairy farmers converging on Brussels last month demanding an end to the collapse in the farmgate price.

To date, UK farmers have achieved some notable victories in their campaign for a better deal including new guarantees from retailers over the price they pay for liquid milk and milk as an ingredient in cheese. The UK government is also going into bat for the sector demanding a range of supportive measures from Brussels including an advance in the Basic Payment, the subsidy farmers receive under the CAP, in order to ease short-term cash flow concerns.

The mobilisation of forces by the NFU has been impressive and hints at the clout the organisation wields in the corridors of Westminster, notably in DEFRA where ministers are said to be sympathetic to the NFU’s agenda.

But beyond the government’s hastily cobbled together policy initiatives and earnest promises to back British farmers, the milk price crisis has exposed a tension at the heart of UK government food policy.

The integration of the global economy and the consequent removal of barriers to trade has been a key political and economic objective in recent decades, led by institutions such as the World Bank and IMF and supported by successive British governments. Indeed, no government has embraced the free market ideology more enthusiastically than the current administration whose fledgling 25 year Food and Farming Plan is dependent on breaking down trade barriers and opening up new export markets. The flip side of the coin is that British producers are more exposed to competitive pressures from overseas than ever before.

The primary cause of the plummeting milk price is an excess supply of liquid milk on the global market caused by a number of factors including the Russian import ban and falling demand in China. The removal of EU milk quotas in April this year is likely to exacerbate the situation with countries such as Ireland now free to unleash their full productive potential.

And herein lies the government’s quandary. If market forces created the milk price crisis in the first place, how can the government be seen to be supporting British farmers without compromising its belief in the market as the most efficient means of allocating goods and services? Any attempt to further protect British farmers (beyond the subsidies they already receive under the CAP) by holding back the flood of cheap imports would seem hypocritical in the extreme by a government hell bent on opening up new markets for British produce. The upshot is that the government must create an illusion whereby it appears to wholeheartedly support the British dairy industry without directly shielding farmers from the forces of globalisation.

In the event, we have seen Liz Truss deliver a response that sits comfortably within the government’s low regulation/high growth narrative including calls in Brussels for the development of a new dairy futures market, similar to those that already exist for grain and sugar, and action to open new markets and reduce tariffs into existing export markets.

Domestically, Truss has pledged to improve promotion of British dairy within the public sector, work with industry to make labelling and branding of British dairy products more consistent and lead delegations of dairy businesses to countries such as China with the view of opening new export markets. Retailers have also been encouraged to increase their support for dairy farmers through the prices they pay for British produce (ironically, this in itself is arguably a form of interventionism).

In the long-term, the effect of the current milk price crisis is likely to be further consolidation in the UK dairy sector leading to greater production efficiencies, a result that would be welcomed by the UK government. Some, mainly small farmers, will inevitably drop out of the industry such is the unforgiving nature of the market, but so long as the government can sell the narrative of protecting British farmers, while effectively pursuing a free market agenda, it will consider this to be a crisis averted.

* A version of this blog was first published in October's Footprint magazine

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