Milk Prices: Why You Might Pay 50% More This Year

A big part of the problem is the high prices of dairy products. The cost of milk, cheese and eggs – staples in the supermarket – rose 9.5% in the 12 months through April. The price of whole milk increased by more than 12%.

There could be more pain, according to a recent analysis by Kite Consulting, the UK dairy industry. Between 2020 and 2021, the cost of a standard four-liter carton of milk was between £1.10 (US$1.36) and £1.20 (US$1.49). This year, the consultancy said, it could be as high as 1.70 pounds ($2.11). This could represent a more than 50% increase from the lower end of the range.

Why the dramatic rise? This is partly due to supply and demand. Covid-19 has driven up prices for many commodities as lockdowns distort global supply chains. This affected milk production, as farmers dealt with more expensive fertilizers and animal feed as well as new environmental rules. Meanwhile, appetite for dairy products increased, especially in developing countries, during the recovery period.

Then came the invasion of Ukraine, which made it more difficult to access products like wheat, fertilizer, and fuel, and raised costs for dairy farmers again.

“War is the thing that is causing the main problem right now,” said John Allen, managing partner of Kite Consulting.

A customer shops for food inside a Tesco supermarket in East London.

fertilizer price

One of the biggest problems is the high price of nitrogen-based fertilizers, which are essential for dairy farming.

“If you look at April 2022 compared to April 2021, you will see fertilizer prices almost four times what they were before,” said Robert Craig, who runs three dairy farms in northern England with around 1,500 cows.

If farmers reduce the amount of fertilizer they use, they will not be able to grow enough grass to feed their cows while grazing. The recent lack of rainfall in England has exacerbated the problem.

Jessica Langton, who helps run a family farm in Derbyshire with 100 head of cattle, is concerned.

“We get the majority of our income from milk, so we need to produce a large amount of grass to feed us [cows] “During summer and winter,” she said. Milk from her family’s farm is used to make cheddar cheese.

Langton noted that many other farms also rely on fertilizers to grow wheat, corn and barley to feed their cows. If they cannot produce enough, they may have to sell some of the herd, either for slaughter or to other dairy farmers.

Fertilizer prices were rising before the invasion of Ukraine because of the natural gas price hike last year. Nitrogen-based fertilizers such as urea and ammonium nitrate are produced from natural gas.

The invasion of Ukraine made matters worse. Russia and its ally Belarus are major exporters of fertilizers, but few buyers want to affect their supply now. An estimated 18% of the UK’s urea comes from Russia and 7% comes from ammonium nitrate, according to the Independent Commodity Intelligence Services.

“Russia is a big exporter of fertilizer and has a lot of sanctions,” said analyst Deepika Thabelial. “This will keep the supply very scarce.”

The price of fuel and animal feed

Energy prices are not just a factor in fertilizer production. Fuel is also necessary to run a farm, where tractors and other machinery can work 16-20 hours a day.

Langton estimates that the cost of the diesel her family uses has more than doubled compared to last year.

Calves are fed in a barn on a farm in Ashford, Kent.

Prices for cow’s feed, which complements their diets, have also risen. The UK’s National Farmers’ Association estimates feed prices have risen by 70% over the past two years.

Before the war, Russia and Ukraine accounted for more than a quarter of global wheat exports. But the disruption caused by the Russian blockade of Ukrainian ports pushed prices to all-time highs in March. They’ve since gone down a bit but remain too highrising again in recent days as India banned exports.

Allen of Kite Consulting said that wheat, along with corn and soybeans, make up a standard for feed prices.

Farmer Craig said Ukraine produces the “vast majority” of the UK’s organic dairy cows’ feed. Now, this product is practically inaccessible.

How does it vibrate

It’s not a given that grocery stores will raise prices for milk and other dairy products in line with the dramatic forecast. Stores warn not to raise prices for essential items too much, so as not to frighten customers.

“Some retailers would be willing to take a much smaller margin, if not small losses were likely, [to] to make [sure] “People are coming through the door. Nobody wants to go to the supermarket that has expensive milk,” said Tom Holder, a spokesman for the British Retail Federation.

But farmers like Langton and Craig worry that the dynamics that are hurting their businesses won’t go away. Many of them also have to bear high labor and transportation costs.

“There’s virtually no one to hire,” Craig said. “You’re advertising for jobs and there’s very little response.” Two of his farms produce milk for cheese. Milk from the third farm is dried and used in a cappuccino mix made by Nestle (NSRGY).

Kite Consulting estimates that total production costs for dairy farmers will rise by 29% from 2021 to early 2023. Meanwhile, government subsidies are falling, making it difficult to break even.

“If we don’t see rising milk prices combined with hyperinflation, we could see a lot of dairy farms go out of industry across the UK,” Langton said, referring to the price her family could sell their milk to manufacturers.

Higher food costs will affect poor families the most. according to A survey published by Ipsos this week. This number rises to one in three for people on low incomes.
David Beasley, head of the United Nations World Food Program, warned of rising food prices It will cause social unrest in some parts of the world.

As prices rise to help farmers stay in business, demand is expected to begin to fall, allowing the market to rebalance itself. But when that moment comes, it remains unknown and worrisome.

“I don’t think it’s expensive yet,” said Allen of Kite Consulting.

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