“Milk is leaving the farm at a loss,” says dairy farmer Ian Harvey, as he warns confidence in the sector is “at rock bottom”.
Most of the UK’s dairy producers were already being paid less for their milk than it costs to produce it after a year of volatile farmgate milk prices, combined with the impact of the summer’s drought and soaring costs of vital fuel and fertiliser triggered by the conflict in Iran.
However, the industry has been shaken further by the decision by two large milk processors in recent days to cut the price they pay farmers for their liquid milk.
Freshways, a big processor that supplies bottles of milk to corner shops, cafes, hotels and wholesalers, announced it was slashing the price it pays for milk by 7p a litre from 1 December, reducing it to 29.4p a litre.
The company blamed weaker dairy markets and said poor returns for liquid milk were squeezing processors.
The cut almost wipes out the combined 9p a litre price increases Freshways introduced over the past two months to support farmers after the hot, dry summer.
The managing director of Freshways, Bali Nijjar, said expected improvements in the dairy markets had not materialised and its costs had risen.
Meanwhile, Arla Foods – one of the three largest UK processors, along with Müller and First Milk – also announced it was slicing 0.45p a litre off its standard milk price in November, to 40.41p a litre. It kept the organic milk price unchanged at 58.25p a litre.
The dairy cooperative said global milk supplies were stabilising at a high level, although the whey protein market had fallen slightly from record highs, after the byproduct from cheesemaking once favoured by bodybuilders surged in popularity with people taking GLP-1 weight loss drugs and those trying to boost their protein intake.
Arla’s price cut is more in line with standard, gradual price movements in the sector.
Dairy is a globally traded commodity and farmers are used to market volatility, as the price fluctuates according to supply and demand.
However, the scale of the Freshways cut surprised producers and sector analysts alike, while the NFU called it “hugely disappointing”.
“It’s shaken us to the core,” said Harvey. “We could possibly see an adjustment coming … but to move the price by such a big amount, rather than phasing it over two to three months is hard for the farmers to cope with.”
Harvey helps run a family farm partnership that milks a herd of 160 black and white Holstein cows and some Ayrshires in north Cornwall. He has not been directly affected by the cuts as his milk is processed locally into cheddar cheese.
But in his role as chair of the National Farmers’ Union’s dairy board, he speaks to many milk producers who were already struggling before the latest milk price cuts were announced.
Chris Walkland, a dairy market analyst, said the Freshways cut came at a time when other processors, including those who make cheddar and mozzarella cheese, have held their prices.
Freshways is “fiercely competitive, especially when milk volumes are high”, Walkland said, adding that to understand the latest price drops “we’ve really got to wind the clock back a year to August 2025”.
Last autumn was positive for milk production in the UK and Europe, contributing to a global oversupply of milk.
Meanwhile, milk volumes did not fall as much as expected during this summer’s drought, as farmers gave animal feed to their cows when the grass stopped growing, helping to maintain production levels.
Farmers who would like to move to a different processor often have little say in who collects their milk, nor the price they are paid.
Some of Britain’s largest supermarkets, including Tesco and Sainsbury’s, have committed to paying their farmers based on the cost of production, while other producers are part of co-operatives. But these groups are not open to all.
Dairy margins have always been tight in an industry where supermarkets have traditionally used low milk prices to tempt shoppers through the doors.
Tesco, Sainsbury’s, Morrisons and Asda have increased the price of a four-pint bottle of milk by 10p to £1.75 in recent months, which equates to just under 44p a pint or 77p a litre.
“Farmers cannot move processors easily or at all and they haven’t been able to for several years,” Walkland said.
“Only a few processors are recruiting new farmers and then only in ones or twos. The retailers look after their liquid milk suppliers very well and they pay them very well, but the milk suppliers who produce cheese and butter for the retailers are not looked after to nearly the same degree.”
