End of EU quota system could lead to desperate farmers adding to the milk glut and hundreds opting to leave the industry

British dairy farmers are being told to expect further falls in milk prices, prompting concerns that hundreds more may soon decide to leave the industry.

The Farmers’ Union of Wales (FUW) has warned that the ending of an EU quota system in April will bring greater volatility to the crisis-hit sector. The system limits what farmers can produce, but with prices falling drastically there are concerns that some farmers will seek to produce more milk to boost their revenues when the quota system ends.

“Given the current supply-and-demand imbalance, the FUW remains concerned that the loss of quotas in 2015 will only compound an already volatile marketplace,” said the union’s senior policy officer, Hazel Wright.

“The abolition of milk quotas will result in a lower market price and a reduction of producers’ incomes. It is likely that a rise in EU exports post-quota could possibly cause a downturn in world prices and heavily impact upon an already fragile and volatile sector.”

Milk prices in the UK are already at their lowest level since 2007. Some farmers are receiving as little as 19p a litre. However, farmers in the Baltic states are selling their milk for just 16p a litre, half the 32p a litre that several of the major supermarkets – notably Marks & Spencer, Tesco and Sainsbury’s – are paying their UK suppliers. Russia’s ban on importing milk from EU member states following trade sanctions imposed by the EU saw the Baltic states’ main market disappear overnight last August.

“They found it really hard to find other markets for their product, hence the price ended up going very, very low,” said Sian Davies, the National Farmers’ Union’s chief dairy adviser.

If prices were to fall further in other European member states, this would have a knock-on effect on the UK dairy sector, where the number of farmers has fallen to below 10,000, compared with almost 36,000 in 1995. The NFU warns that there could be fewer than 5,000 dairy farmers left in the UK by 2025.

Davies warned: “There are no signs of things improving until the third quarter of this year. As a result, we will see farmers reducing production because they can’t afford to keep producing at that price. Farmers are now having to decide whether to cull cows, reduce production or leave the industry.”

Around three-fifths of milk produced in Britain is sold and consumed in this country as liquid milk. A quarter goes into cheese, mainly cheddar. Around 15% goes into creams and yoghurts. However, British farmers are finding that there is a glut of cheese on the European market due to the Russian ban on EU imports, with the result that prices are falling. Much of the surplus is being turned into milk powder, but this has caused a glut too, especially as demand has been falling in China.

Davies urged UK consumers to keep buying cheese, butter and yoghurt made with UK-produced milk. She said the prospect of a price war between supermarkets could also see the price that corner shops and the catering industry pay farmers being driven down.

The price shifts make forward planning and investment difficult for dairy farmers, says a recent report by the environment, food and rural affairs select committee. It suggests that the creation of a futures market might bring greater price stability. The NFU is broadly supportive. However, Farmers for Action said that only a very small percentage of dairy farmers would be interested in such a move.