Prospects for Northern Ireland dairy in 2021 - a real mixed bag
The sudden closure of the hospitality and food service sector 12 months ago saw dairy commodity prices plummet and a subsequent fall in farm gate milk prices (the Ulster Farmers’ Union calculations indicated that it amounted to a loss of £16m).
Yet crucially, the milk continued to be collected off farms and processed and prices recovered to an extent. Now as we approach the end of the first quarter of 2021, prospects are mixed.
All major dairy categories saw retail growth in 2020, in both spend and volumes, which was a contrast from 2019 when total dairy products struggled to find growth.
The COVID-19 lockdowns saw a surge in households cooking from scratch, and this benefitted a number of dairy categories. Butter, cream and cheese all saw double digit growth in 2020. Fresh cream was the fastest growing dairy category with retail volumes up 22.8 percent (Kantar, December 2020). Butter benefitted from home baking trends, seeing volume growth in retail of 18 percent. Throughout 2020, cheese saw volume growth in retail of +15 percent. Liquid milk also saw strong volume growth at +seven percent, accounting for 65 percent of dairy retail gains.
The second UFU #Februdairy campaign has been another resounding success. Our members prepared a series of videos throughout the month illustrating day-to-day life on a Northern Ireland (NI) dairy farm, showing the daily routines and what is involved in feeding, calf rearing, animal welfare and Lyn Gordon, the wife of our dairy chairman, recorded a video on the nutritional value of milk from the perspective of a physiotherapist.
Feedback to date from social media has been very encouraging and has helped showcase the substantial merits associated with NI dairy farming.
The consumer focus has been illustrated by the growing desire of our members to install vending machines dispensing milk on their farms. The demand for this from the consumer has been phenomenal and indicative of the quality of the product we are producing and reconnecting the public with dairy farmers.
Since the start of 2021, the world financial markets have seen a bull run on commodities i.e., grain, sugar and specific oils and this has also been reflected in dairy markets.
The GDT Index in New Zealand averaged a seven year-high last week, the tenth rise in the last 11 trading events. Dutch butter prices have risen 11 percent in the last six weeks. Whey powder prices rose significantly buoyed by the demand for protein from the recovering Chinese market.
Closer to home, UK butter prices have responded, rising from £2,900 in December 2020 to £3,200/tonne last week and UK cheese prices have remained firm at decent prices, buoyed by high retail demand. Consequently, MPI is currently at the highest level it has been since October 2017.
Looking ahead to 2021
Despite some transport issues (namely Dover to Calais) NI exports are moving and this cumulative demand is positive as we approach the spring flush. Whilst added transport costs and clarity of rules of origin being discussed, the key to keep trade routes open with product is moving at good prices.
On the basis of rising commodity prices, as a staple product with a renewed and re-enthused demand from the consumer, industry analysts are expecting dairy to continue to do well in to 2021. Some of the trends that emerged during 2020 are expected to continue through the year, which should mean improved NI base milk prices.
However, there is a sting in the tale.
According to the UN Food and Agriculture Organisation, corn prices have climbed 43 percent, soya bean costs are up 50 percent and wheat up 15 percent. Together with supply issues, these rising commodity prices mean that NI dairy farmers are seeing large increases in animal feed prices. Feed prices are only one part of the rising on-farm bills, oil and fertiliser prices are also rising. Input prices rise out of sync with output prices, despite the positivity in the market, creates a conflicting picture.
Concerns are reappearing that base milk prices may fail to keep up with improving market returns, both retail and commodity. Rising input prices as outlined mean that any improved base milk prices will need to rise significantly to reflect a proportionate return for local dairy farmers.
The UFU position is that we need to look at how milk is priced in NI.
NI dairy farmers are receiving the same price as what they did 25 years ago yet the input prices have risen disproportionately, and even damning is that we are still receiving the fourth worst milk price in Europe. This is despite the good news presented in this commodity watch.
The UFU are calling upon all NI stakeholders to engage with the Department of Agriculture, Environment and Rural Affairs on progressing the debate on milk contracts. Only by doing so will this bring us closer to NI dairy farmers receiving a reflective and meaningful farmgate milk price and improve their standing in the supply chain once and for all. The public reaction in the last 12 months to dairy illustrates that our high-quality product should no longer be treated as ‘a loss leader’ and be marketed at the highest possible level.