DAIRY PROCESSORS which fail to pass on improved market returns to farmers could face a serious backlash and suffer a supply shortage in future.

According to accountants Old Mill, which has over 1200 farmers on its books, producers are frustrated that processors are focusing on their own bottom lines at the expense of the ongoing health of the dairy industry as a whole.

Mike Butler, chairman of the West Country firm, said: “The prolonged period of low prices, caused by global oversupply of milk, has sent many farmers into a loss-making position, but a tightening of supply and the weaker sterling have boosted wholesale returns by almost 68% since April, to the equivalent of 26p/litre in August.

“In contrast, the average farmgate price in July was 20.57p/litre, compared to a cost of production of around 28p/litre. Processors may feel they have the upper hand in the short term, but all producers have the ability to serve notice and move their supply away," he said.

“Furthermore, all processors require milk to run their plants and they have obligations to customers to fulfil. It’s vital that they consider the medium to longer term and understand their business strategy and what is best for the industry as a whole."

Mr Butler noted that some processors had, fortunately, recognised the need to address the dairy crisis and begun to change contracts and move prices up: “But it is vital that other processors follow suit, and fast. Farmers have proven extremely resilient in the current downturn, cutting costs to the bone and retaining a significant asset base. One thing is for sure, a milk processor will go out of business quicker than a farmer if they stop receiving milk from their producers.

“Those processors and milk buyers that ignorantly and perhaps arrogantly carry on taking advantage of the current market may well find that the honey they taste today may soon turn particularly bitter.”