How Did The Government Influence Of The Current Dairy Crisis?

Milk production is considered one of the most important initiatives in UK agriculture, milk and dairy products are known to be essential primary food for the vast majority of the UK population, as it accounts for around 15% of household expenditure on food. However the relation between the sums of milk produced in Britain and demand from consumers has not been an issue in the past compared to other factors that have had a far superior impact.

The insurgence of the current dairy crisis has been particularly influenced by policies implemented by the government and the influence that these policies have had on farmers’ financial circumstances. Along with the government, supermarkets have also had a key role to play in the uprising crisis.

An extract from the BBC states that The “National Farmers' Union (NFU) argues that a supermarket price war, which has seen a 2.3-litre bottle of milk sell for 88p, has devalued the product in the eyes of the public, "purely to get customers through the door"” (BBC, 2015). Furthermore the National Farmers’ Union examines that the price war that was occurring between major supermarkets was “crippling” the dairy industry, as a major UK dairy co-operative had suspended payments to over 1,200 farmers for minimum two weeks. (Barrett and Shubber, 2015). This gives the impression that the impacts Supermarkets have had recently were quite significant. Due to the low price margins that supermarkets are selling milk for, farmers are struggling to break even and because the volatility of milk prices look likely to stay whether farmers like it or not, in order for them to get through these problematic times they must implement risk management strategies to deal with

As the demand globally for dairy products was increasing by 3-4% per year, it meant in Europe farmers can now produce milk with greater economies of scale and exploit and take advantage of new markets with the milk quota reform put in place. However, the reformation caused fear and unhappiness among UK Farmers as an expansion of EU milk output led the market into being flooded and a drop in price which eventually led to less proficient farmers being forced out of business (Ag.alltech.com, 2015). It’s clear to see that the abolishing of milk quotas had generated a surplus of EU milk production that is highlighted in Figure 1, the surplus simply resulting in increased production of EU dairy commodities which corresponded with the decline in EU prices as shown in Figure 2. Furthermore show that it is expected commodity prices in British dairy would decrease ominously under the milk quota reform in relation to the Baseline. The abolishing of the milk quotas clearly has a significant plunging effect on UK dairy prices and production. When comparing the UK with the rest of the EU where abolishing the milk quota had only a positive impact as it led to a moderate increase in milk production. Along with this abolishing milk quotas, export subsidies were also eradicated, meaning the production and price impacts in the UK were more noticeable while total EU production