The great dairy farm crisis

At Burnt House farm deep in the Sussex countryside, alongside two other farm he also runs, Joe Delves’ 600 dairy cows produce around four million litres of milk per year. But it can cost around 10 pence per litre more to produce than he sells it for. Somehow, he has to bridge that gap – either through borrowing or reserves built up in better years. “It swings fast,” he tells us. “You can go from a good year to a tough one very quickly.”

Delves houses his cows in three units but all of them graze outdoors when conditions allow. This system is designed around efficiency – spreading risk, managing output and making the numbers work at a larger scale.

Like Delves, many UK dairy farmers find themselves caught up in an all-too-familiar squeeze. Milk prices move swiftly, both up and down, yet costs of feed, fuel, fertiliser and labour rarely fall.

Margins have always been tight in the sector, with supermarkets known to lower milk prices in a bid to attract customers, and price crashes have become a frequent event. In response, some farms have been forced to increase herd sizes, or been slowly driven towards more intensive farming practices, in a bid to remain profitable.  

Prices slashed

The latest downturn – the biggest and quickest on record, according to industry analysts – has been blamed on a global oversupply of milk and led some UK dairy processing companies to slash the prices they pay to farmers. Coupled with cuts in subsidies, this situation means many farms are struggling to meet the cost of production. There have been warnings that hundreds could close. 

Now, MPs are calling for greater protections for the sector. Alistair Carmichael MP, Chair of the influential Environment, Food and Rural Affairs (EFRA) Select Committee, told us the situation wasn’t sustainable.  

“Dairy farmers are facing massive pressures at present because of low milk prices resulting from an oversupply. That should self-correct in the fullness of time but, until it does, dairy farmers need help. The risk is that the ‘correction’ in the market will involve English dairy farmers going out of business,” he said.

The EFRA committee is currently conducting an inquiry into fairness in food supply chains. And Carmichael said the removal of subsidies in the wake of Brexit could be making a bad situation worse. “This is not the first time we have seen this happen but previously farmers could rely on basic payment [subsidies] from the Government to help them out. We have none of these safety nets now.”

In response to previous concerns about unfair pricing and supermarket suppliers’ poor treatment of farmers, in 2013 the then-government set up a dedicated regulator, known as the Groceries Code Adjudicator (GCA). In 2020, it created another regulatory post, the Agricultural Supply Chain Adjudicator (ASCA), to help enforce fairer treatment across wider supply chains.

Rules specifically designed to better regulate milk contracts between processors and farmers came into force in 2024. This enabled the ASCA to investigate complaints and, if these are upheld, issue civil penalties or force milk purchasers to pay compensation to farmers.    

Judith Bryans, chief executive of Dairy UK, which represents milk processors, said the ASCA considers producer’s complaints independently, and that the rules, which she said aim to support fair, transparent farmer-processor relationships, were developed after extensive consultation.

Despite these apparent safeguards, Carmichael expressed concern about their effectiveness: “The GCA and the ASCA both have tiny staffs and small budgets. The only person I have heard express confidence in their current setup is the Grocery Code Adjudicator himself!” He added that their current approach has failed to “shift the dial”, and their approach to unfair practices was too soft.

Power imbalance

“The need for market regulation comes from the massive power imbalance between big supermarkets [...] on the one hand and farmers on the other. It concerns me that the Grocery Code Adjudicator thinks it is possible to address that power imbalance in a “collaborative” way,” he told us, adding that regulators have to inspire confidence amongst the smaller players too.

Louke Van De Meer, who runs Oak Bank farm in Sussex, is one of them. The tension between what works practically and what stacks up financially runs through his farm. He has around 150 cows at Oak Bank farm in Sussex. Having fewer would be easier to manage, he says. “Between 100 and 120 is where it’s comfortable.”

When the milk price is strong, output rises, he tells us. When it falls, the business has to adjust. But dairy is not a tap you can simply turn off. Cows still need milking, feed still needs buying, and the rhythm carries on regardless of the market.  “We don’t set the price. We take it,” he says.

Carmichael’s intervention follows the publication of figures showing that 20% of British dairy producers have quit since the Covid pandemic. The figures, released earlier this year by industry analysts from the Agricultural and Horticultural Development Body (AHDB), estimated farm numbers had dropped from 8,720 to 7,010 over six years. Some experts have warned that the current crisis could result in up to 700 more dairy farmers packing up for good.  

Despite the reduction in the number of dairy farms, the amount of milk being produced in the UK has stayed fairly consistent, in part because of increasing herd sizes, wider industry consolidation, and, as was revealed today, growing numbers of intensive dairy units that aim to maximise efficiency.            

Industry sources point out that the current pricing crisis hasn’t impacted all farmers to the same degree. Those on some supermarket contracts - known as “aligned” contracts - have fared better, as these payments are calculated based on the actual cost of production, rather than linked to more volatile commodity prices, which can change quickly.

Completely unfair

Organic dairy farmers have also largely escaped the price cuts, as payments to these producers often attract a premium. Despite this, the slim profits that some dairy farms continue to receive for producing supermarket staples such as cheese has prompted fresh calls for greater scrutiny of pricing.

Research in 2022 found that a typical supermarket pack of cheddar cheese may cost a dairy farm £1.48 to produce, yet they receive as little as 0.05p in profit from the supermarkets, who typically sell it at £2.50.

Danny Chambers MP told us: “Many farmers are earning significantly less than the living wage, yet supermarket prices are so high that many people cannot afford to buy basic, decent quality food,” he said.  

He said the situation was “completely unfair” and would “increase the risk of losing our domestic food production. Farmers deserve a fair price for the food they produce and supermarkets should [...] face scrutiny over their practices.”

Like the others we visited, Matthew Ford’s dairy business, which farms nearly 700 cattle in Sussex, is feeling the pressure of rising costs and access to land. But it is the direction of policy that concerns him most.

Proposed changes to the government’s environmental permit scheme are seen as a significant shift.  These would bring some dairy farms - along with intensive beef units -  in line with factory pig and poultry units and require them to hold licenses.

“The biggest threat is the cost of it,” Ford says. “You’re paying for someone to come out and inspect the paperwork. It’s just a whole cycle of bureaucracy… you could be spending that money on infrastructure.” There is a concern that these pressures, combined with tight margins, may accelerate structural change within the industry, and even lead to further consolidation, as some farms call it a day in response to additional red tape and expected fees for permits, and others intensify or scale up to fill the gap. “All you’re doing is reducing the size of the industry,” he says. “You’re just going to see offshoring effectively.

Back at Burnt House Farm, Delves argues that future regulation needs to be grounded in how farms actually operate. “It’s got to be based on evidence,” he says. “What works in practice, not just on paper.”

One way Delves has tried to manage the risks to the dairy industry is by diversifying his operations. He now has a separate cheese-making business that allows him to add value to a portion of the milk. “If part of the business doesn’t make money, it’s a hobby,” he says.

In response to our findings, a spokesperson from Defra said: “This government is backing our hard-working dairy farmers with new regulations put in place last year to improve fairness and transparency across the supply chain so that businesses can flourish."

A version of this story was also published by Indie Farmer magazine, and by the Bureau of Investigative Journalism.