How has inflation impacted dairy farmers and the dairy industry? 

For decades, dairy farming has suffered from low margins that put them at greater risk from the impact of market volatility and, more widely, inflation as a whole. Most farmers were impacted in some way by the high rates of agricultural inflation last year, coupled with the drought of summer 2022. But the impacts were felt far more strongly in the dairy industry. Many dairy farmers we speak to are still struggling to recover from the cost implications of the events of 2022. 

Where are dairy farmers seeing inflation affecting their costs? 

One of the most significant cost increases across the agricultural sector last year was fertiliser. This clearly had an impact on arable farming, but it also had a knock-on effect for dairy farmers, as they struggled to access fertiliser for their hay fields. Likewise, those that buy in hay or silage were having to do so at a premium. 

Fertiliser prices first saw a shocking increase in 2021, but prices continued to rise throughout 2022. Prices paid in September 2022 were up 9% on the last quarter (Sep v Jun) and were 139% higher than a year earlier. The volatility of natural gas markets in 2022, combined with rising gas prices, led some fertiliser manufacturers to halt or reduce production, resulting in the UK becoming more dependent on imports, further adding to the costs.

Similarly, natural gas and crude oil prices heavily impacted fuel prices last year, which caused significant strain for many dairy farmers. Dairy farming requires significant amounts of energy compared to other livestock farming sectors, as dairy parlours require electricity and lighting to be used. Furthermore, some farms require fuel for heating in particularly cold weather along with the need for lighting within barns during the winter months. 

These issues were exacerbated by the significant increase in compound feed costs, in part due to the impacts on supply chains from the war in Ukraine, along with increased fuel costs for transporting and manufacturing feed. Some reports show compound feed costs have risen up to 73% compared to the previous year. 

How have environmental factors impacted dairy farmers? 

Last summer saw droughts across much of the country Being based in the southwest, I noticed the local impact most significantly. Many farmers struggled with hay and silage yields, and most could not get a second cut. This led to a huge shortage of forage for the winter months, further worsening the impact of compound feed costs while also creating price hikes in the forage costs. The poor rainfall also meant some dairy farmers had to bring their cattle into barns earlier due to the lack of grazing in their fields. 

High heat levels for extended periods of time also has a significant impact on milk production levels in cows, which meant that costs were up and yields were down throughout the summer months. All of this created the perfect storm of conditions for significant inflation. 

How has inflation affected the cost of dairy products to consumers? 

The increased costs on the low margins for dairy farmers have pushed them to seek milk price increases from their contracts. Additionally, dairy processors have seen the increased energy costs have a massive impact, as most dairy products are relatively energy intensive to produce. These price increases have had to be passed on to the consumer. Official figures show the inflation rate for milk, cheese and eggs reached 31% in the year to January, the fastest annual rise since comparable records began in 1989.

Dairy products are one of the key indicators of food price inflation in the UK, as they are so ubiquitous within the average household shopping trolley. Unfortunately, previous milk prices have often been kept extremely low by supermarkets as part of their competitive prices, which in part has led to the low margins for dairy farmers. This is why, when these extreme cost events happen, the impact is so keenly felt across the dairy sector from farmer to consumer.