The Guardian view on milk prices: dairy farmers are being driven out of business. The groceries regulator should find …

'Since 2002 more than half of Britain's dairy farms have gone out of business.' Photograph: David Levene

Britains long tradition of dairy farming has moulded the landscape. Small fields of bright green grass enclosed by hedges, the farmstead and a cottage or two that are typical of counties as distant as Cheshire and Pembroke, Cornwall and Fife, owe their existence to the family dairy farm. But the chances are that nowadays there wont be any cows in the fields. Since 2002, more than half of Britains dairy farmers have gone out of business, defeated by rock-bottom prices and rising costs. And for the past few months, even those that have survived have been caught up in another perfect storm. Britain consumes more than four-fifths of the milk it produces, but its price is dictated globally, by the cost of producing milk in, say, New Zealand or the US. The past year has seen exceptionally good milk-producing weather in every milk-producing country. Worse, it has followed a few boom years that have led to higher levels of production and then, in Europe, hit up against the cheese mountain created by Russias ban on imports. Some fear the price could fall as low as 17p a litre, triggering EU intervention.

Once again, the supermarkets are in the frame for squeezing farmers dry. There is now a groceries regulator, Christine Tacon, in charge of monitoring relations between suppliers and the supermarkets. But her remit doesnt cover the whole dairy chain. Its consumer pressure, which led to some supermarkets introducing a fixed pool of suppliers who were paid over the odds, thats driven change. Prices for this elect group are down, but they are still in profit. What is less transparent is what these supermarkets are paying for the products of processed milk the yoghurt, cheese and butter and what the knock-on effect of lower shelf prices is on farmers who are not in the pool. First Milk, the farmers co-operative that has announced it is having to delay payments for a fortnight, is one of those suppliers that does not have a contract with a big supermarket chain. No milk cheque, for farmers whove borrowed heavily, could mean the end of the road. In December, dairy farmers were going out of business at the rate of two or three a week.

A decade ago, it seemed the only future for dairy would be huge herds, thousands strong, kept shut up in barns. But its become clear that there is no one successful model for dairy farming. Small farms have learned survival strategies and the average herd size is still only about 125. They are helped because it is in the interest of the whole local farming economy to cut farmers in trouble a bit of slack. But at the end of this year, Europes dairy farmers will face their biggest challenge in a generation. Milk quotas, introduced back in the 1980s to regulate supply, will finally be removed, creating a completely free market in milk. Britain has never faced levies for overproduction, unlike our main competitors Germany, Ireland and Denmark. When quotas are off, they will increase production. Prices will fall again. Even before quotas go, some EU countries want them back. The analysts may be right: prices will bounce back. But the farmers want to know what the supermarkets are up to, and the groceries regulator should be finding out.

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The Guardian view on milk prices: dairy farmers are being driven out of business. The groceries regulator should find ...