Dairy crisis threatens spiralling costs of cheese and milk for indies

Fuel shortages and rising costs are set to have a lasting effect on British supply chains, and the UK’s leading farming experts have warned that the similar price hikes to dairy products, including cheese and milk, are likely to be permanent.

Britain’s largest dairy co-operative Arla has sounded the alarm as the financial squeeze forces UK milk production to fall – a trend that could threaten future milk supplies according to farming experts. But why exactly is Britain seeing a dairy crisis, and how will it affect independent retailers?

Feed, fuel and fertiliser
Paul Tompkins, the vice-chair of the National Union of Farmers dairy board, has warned price increases were being driven by the spiralling price of feed, fuel and fertiliser and that higher shop prices for dairy products are likely to stay for the foreseeable future.

Speaking to GB News, Paul explained, “It takes me two and a half years to get a calf from being born on our farm to be actually producing milk and that incurs a lot of costs over those two years.

“Even if things were to return to normal, even if we were to reduce our costs now and be paid a fair price for milk, the implications of what we’re going through now is actually going to be for the medium to longer term.” 

A dairy farmer’s main costs are feed, fuel and fertiliser, and all of these have been subject to huge price hikes over the past few months. “Last year I was paying 62p or 63p for the diesel I use in the tractors; the last load I bought was £1.29,” says Oxfordshire dairy farmer David Christesen. “It’s come back a bit but, notwithstanding that, it is a huge increase.”

David’s family business manages a herd of about 1,000 cows and he reported that costs were already going up as a result of the upheaval caused by the pandemic and Brexit, but the war in Ukraine has “turbocharged inflation to levels the like of which I’ve never seen in 30 years of farming”.

It’s not just fuel costs that are affecting the supply chain, as fertiliser costs are also skyrocketing. As NFU President Minette Batters explained, “Farmers are experiencing unprecedented costs when buying fertiliser, alongside tightening supplies, and it’s critical that government put in place measures to mitigate some of these effects.

David has seen these price increases firsthand. “This time last year I was paying about £310 or £315 a tonne, but I’ve just got a price this morning and it is £930.” This would increase his fertiliser bill by £60,000 over a year.

It is feared some farmers may consider quitting the industry as the picture just keeps getting worse. “These are big numbers,” explained David. “For many years we’ve absorbed smaller increases by becoming more efficient, by scaling – which is how we’ve coped with a deflationary milk price. The reality is when you get to these sorts of numbers, you just can’t absorb those, so something has to give.”

The effect on indies
Just as farmers are unable to absorb the huge costs being added to dairy production, independent retailers such as farm shops, delis and cheesemongers are having to pass on the increases to consumers.

Clare Jackson, director of Slate Cheese explained, “The increases are now too significant for us to absorb, we need to maintain our margins to cover the huge rises we are seeing in all areas of overheads – electricity, waste contracts, packaging to name but a few. In about half our British range we have seen price increases of 5-8%. The heftier increases have been in the European cheeses – about two-thirds have risen in price and here the majority are double-figure increases.

“Price rises and the cost-of-living crisis are impacting on our sales figures and particularly basket spends – pieces of cheese purchased were definitely smaller over Easter and the bank holiday weekend than we might have expected.”

How to maintain dairy sales
As Clare advises, communicating with your customers to explain why the price increases have occurred and working out a compromise that helps them stick to their budget while still providing a much-needed sale for you is the best method.

“Chatting with customers, on several occasions, there was a vibe of balancing the treat of a nice cheese selection with being mindful of overall spend. As always, we share the stories behind the cheeses we sell and this includes updates on why prices are rising and shortages occurring. We find customers are generally extremely understanding once we share background information on what is causing supply issues and there is usually another delicious, similar cheese we can offer them. 

“Since all our pieces of cheese are hand-cut in at the point of purchase it is easy for us to provide smaller quantities and offer a ‘cheese quote’ so that people get an idea of how much they are going to pay for a piece. I think buying hand-cut cheese can be a bit intimidating at the best of times as who knows what 100 or 200g really amounts to so offering a ‘cheese quote’ makes things informal with customers so they feel comfortable to ask for more or less as suits their budget. If it’s too much I am always happy to put the piece back on the shelf and cut another.”

Working together and maintaining open communication is always the best policy, and independent retailers are naturally in a prime position to achieve this and navigate the dairy crisis.