On a misty February morning, a few dozen of Michael Oakes’ herd of dairy cows are busy tucking into their food, inside one of the large sheds on his farm near Bromsgrove in Worcestershire.
“They’re worse than teenagers,” laughs Oakes, of his 160-strong herd of mostly black and white Holstein Friesians, as well as 30 brown Jersey cows. “All they do is sleep, eat and go to the toilet.”
In about a month’s time, when the weather improves, they’ll be able to go back out to graze in the fields farmed by Oakes, and his father before him, for 40 years.
For now, they’re still eating indoors, with each cow getting through about 50kg a day of total mixed ration cattle feed, which contains a blend of ingredients including grass, maize, soya and wheat.
Animal feed is just one of Oakes’ costs that has shot up over the past year, along with the price of fuel and fertiliser, prompted by the surge in energy costs caused by the war in Ukraine, and further exacerbated by last summer’s drought.
“Wheat has gone up, soya, all the things that make up the diet for the cows have all massively increased. At the same time, we went into a summer where probably three-quarters of the country had very little forage to feed because of the drought,” he says.
British farmers are not alone in facing these challenges, he says: “Those costs and that weather was replicated throughout Europe, and the costs were shared by every other dairy-producing country in the world.”
However, as well as stubbornly high input costs, British dairy producers have been struggling with a host of other problems, such as chronic labour shortages.
These issues will once again be on the agenda when thousands of English and Welsh food producers gather in Birmingham this week at the annual conference of the National Farmers’ Union (NFU).
Last year’s meeting concluded just hours before Russia’s invasion of Ukraine, which sent huge shock waves through the food supply chain. The surge in oil and gas prices pushed the price of fuel and fertiliser upwards, while the conflict has also disrupted the global supply of wheat, barley and other cereals.
Daniëlle Duijndam, a dairy analyst at the Dutch bank Rabobank, says the war in Ukraine has had a “significant, indirect, impact” at the farmgate level.
“For dairy processors, increased energy costs had a big impact as most dairy products are relatively energy intensive to produce. This also triggered renewed negotiations with food retailers. Ultimately, these high costs are translated to the retail shelves and thus to consumers.”
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.
At the same time, the wholesale price received by farmers like Oakes has climbed to the highest level on records dating back to 1970, hitting 51.5p a litre in December.
The UK’s headline rate of inflation may be easing, according to last week’s figures, after a third successive monthly decline to 10.1% in January. However, it remains close to the highest level in 40 years as prices for food, drink and other basic essentials keep the pressure on households.
Such increases have been especially tough for poorer households, who suffer more from the rising price of basic essentials than wealthy households because they spend a higher proportion of their income on food.
While dairy producers are now receiving more money for their milk, this follows months of swallowing higher costs.
Many responded to this income squeeze by reducing the size of their herd. Oakes has one-fifth fewer cows than he did a year ago, as he hasn’t replaced animals that have left the herd.
As a result, he is producing less milk than he did before – currently about 1.7m tonnes a year.
Oakes, the chair of the NFU’s dairy board, says this was repeated across the country in 2022, when UK milk volumes dipped by about 1%, although the situation has improved somewhat and production is now back above last year’s levels.
Arla, the UK’s biggest dairy co-operative, to which Oakes and a third of Britain’s milk producers belong, says “inflationary pressures” pushed the cost of producing milk “to an all-time high” last year.
“Many farmers have been struggling to cover their costs, which reduced the amount of milk being produced,” a spokesperson said, adding that the cooperative had been working with farmers and retailers to “balance supporting our farmers through unprecedented times and ensuring we could keep milk supply flowing into supermarkets”.
Retailers have sharply increased their prices, including Waitrose lifting the price of a four-pint bottle by 36% in the space of a year to £1.70, and Aldi raising the price of its Cowbelle long-life litre of milk by 73% to 95p.
However, wholesale dairy prices have now begun to fall back, as global energy and commodity prices have come down in recent months, while supply bottlenecks have eased, and demand has faltered in advanced economies amid weaker economic growth.
Analysts warn that consumers are unlikely to see significant falls in the shelf price any time soon. “Dairy commodity prices are well past their peak but still at elevated levels and we do expect them to remain at elevated levels for the foreseeable future,” says Duijndam.
“It is unlikely that prices will move back to the pre-inflation level.”
Judith Bryans, the chief executive of Dairy UK, which represents farmers and milk processors, says packaging, transport, energy, and other ingredients have all played a role.
“The reality of doing business over the last two years is that there have been inflationary increases across the dairy supply chain for everyone, at every level,” she said.
“There’s a real limit to how much businesses could absorb the increased costs and eventually some of those costs inevitable resulted in price inflation.”
Higher dairy prices and the increased cost of a basket of groceries have already had an impact on consumer behaviour, with many shoppers switching from branded ranges to cheaper own-label butter or cheese products, Oakes says.
This can also hurt British dairy farmers: “A lot of value lines in cheddar wouldn’t necessarily be produced in the UK, even though the vast majority of retailers are big supporters of UK cheese,” he says.
“We’d rather put dairy into higher margin products, but consumers are trading down.”
At a time when retailers are pushing to keep prices down for shoppers, a survey from the Agriculture and Horticulture Development Board (AHDB) shows that price has climbed to become the most important consideration for consumers in recent months. Meanwhile, sales of all organic dairy products fell in the 12 weeks to Christmas, according to figures from market research firm Kantar.
For some, rising dairy prices are long overdue. In 2015, farmers herded cows through the supermarket aisles in protest after the price they were paid fell below 30p a litre. Many farmers quit the industry as a Russian ban on EU imports and heavy price competition between established supermarkets and the German discounters Aldi and Lidl dragged prices down.
A subsequent collapse in production then led to a surge in prices in 2017 and fears of butter shortages, highlighting the fragile nature of the industry and the risk of boom and bust.
Nick Holt-Martyn, a dairy market analyst and south Devon beef farmer, says the cost of food in Britain has become unsustainably cheap. “The price farmers receive is not in their own hands, it’s not like a shop where you put on for sale the price you need. Farmers are price takers.”
A spokesperson for the Department for Environment, Food, and Rural Affairs (Defra), said: “The UK has a highly resilient food supply chain and is well equipped to deal with range of situations and market fluctuations.
“We recognise the impact of rising food prices and we will continue to work closely with all sectors, including those in the dairy supply chain.”
Back on Oakes’ farm, he intends to rebuild his herd back to 200 cows, to increase milk production, but will do so slowly.
“With the uncertainty of the next months, and the farmgate price drops we’ve already seen, we’ll just take our time.”
• This article was amended on 21 February 2023. An earlier version said that Michael Oakes’ herd produced 1.7m tonnes of milk a year. This should have been 1.7m litres of milk a year.