Life in UK liquid milk is tough. Rising input costs, fierce competition for supply and supermarket price wards have put processor margins under continuing strain. But even by recent downbeat standards, the current mood is dark with two liquid milk businesses hitting the buffers this year, Quadra Foods and the processing arm of Dairystix maker Farmright Group, both called in administrators in February, followed in early March by Rock Farm Dairy. So what's changed? Much of the answer can be found in the global commodity markets. A dramatic fall in the price of bulk cream - an important source of income for processors - coupled with soaring prices on fuel and plastics has put extra strain on a sector already operating on wafer-thin margins. According to DairyCo, the price of cream in February was £1.18/litre (25% below 2011). The Platts index, a key indicator of plastics prices, has hit £1.285/t, up from an average of £1.106/t in the last six months of 2011. Experts estimate these two factors alone translate into roughly £125M in additional, annualised costs to the sector - and that's before even taking into account the rising cost of fuel. That £125M extra consists of: £276.1/M litres of cream produced annually; £105M lost income on all cream produced: 110,000/t of plastic used in milk bottles per year; and £19.6M extra plastics cost based on 178.1/t price increase.
