Falling pound value may aid UK-Euro dairy woes

05-Jan-2009 - Last updated on 05-Jan-2009 at 13:12 GMT

British dairy groups are proving to be particularly sensitive to the bleak new year outlook facing European processors, though the falling value of Sterling may cushion the nation’s producers ahead of an expected long-term pickup.

Jim Begg, director general of the national industry association Dairy UK, said that throughout the EU, input costs and tighter regulations have been a common concern for manufacturers over the last 18 months.

While predicting strong long-term potential for UK-based producers and suppliers, particularly from a focus on functional ingredients, Begg claimed the same businesses were at threat from the wider challenges affecting European dairy.

He suggested that global fears over economic certainty had compounded farmers’ calls for higher payments for their milk at the same time consumers demand lower priced dairy goods.

“We know that dairy farmers are experiencing very tough conditions, with historically high prices still for many inputs and pressure on returns,” stated the association. “Milk processors are also facing a difficult market.”

Sterling cushion

Begg claims that although the UK market is proving extremely susceptible to these factor, due in part, to the country’s reliance on the financial sector, ongoing devaluation of the national currency may have some export benefits.

“The weakness of the pound (Sterling) versus the euro clearly favours stronger exports to the Euro zone,” he stated. “The strength of the pound relative to the euro is helping to cushion the effects of the recession in the UK, by making [its] exports more competitive.”

Despite the potential protection afforded by Sterling, Dairy UK suggests that low confidence from farmers in the country was cutting down the level of milk being supplied to manufacturers, potentially setting back export potential.

“Many of our continental neighbours, including the Netherlands, France and Denmark, have actually increased milk output,” added Begg.

Dairy UK suggests that conversely, the country’s manufacturers and producers had made some real advances in boosting reputation of their products across Europe and even further away.

”UK-produced dairy commodities are recognised around the world for their high standards, and there is an increasing market abroad for value-added British products, such as cheese,” claimed Begg.

The association played up attempts to improve the environmental impacts of the country’s production through schemes such as the Milk Roadmap, designed to offer methods for greener dairy processing and production.

While the association says it had worked with international counterparts in providing information to draw up similar national schemes, it claimed that the UK industry should prove adept at showing some resilience to the prevailing cost and eco-challenges.

“Britain and Northern Ireland continue to be among the most competitive environments in which to produce milk, thanks to a mild, wet climate,” said Dairy UK. “Cost relief should start to feed through from lower oil prices this year.”