12 December 2017
Dairy farmers are often confronted with substantial changes in the prices they receive for their milk. When you have a look at the milk prices of the last decade, it’s clear that all dairy farmers have to deal with fluctuating prices. The cause of this phenomenon? ‘Fluid milk and most dairy products have an ‘inelastic’ demand and, dairy farmers exhibit an “inelastic” supply response to changes in milk price. The term is really just a way to say that dairy farmers make relatively small changes in short-run milk production decisions when the milk price changes and consumers do the same thing with purchase decisions. This type of behavior can lead to volatile prices.
Price fluctuation is part of a normal functioning market. But extreme fluctuations or volatility can have significant negative consequences for producers of milk: it makes financial planning and investment decisions more complicated. This affects at producer level and processor level and could prevent the dairy industry as a whole from maximizing its potential.
EuroDairy created this technical leaflet around pilot farmer McCracken from Northern-Ireland: 013447_Technical_Leaflets_Milk_Price_Volatilty (in English).