Low farm-gate prices are forcing farmers to scale back milk production which could leave the UK facing shortages at the end of the year, says dairy co-op giant Arla.
Chief executive Peder Tuborgh told the BBC there was not enough milk to make cream or butter, claiming farmers had “put the brakes” on production after a glut caused prices to drop in 2016.
And he warned that the first effect of lower milk supply will be “that the price of butter rises very sharply”.
Arla – the fourth largest dairy company in the world with respect to milk volume – has already been forced to put up prices for its Anchor and Lurpak brands, in February.
Mr Tuborgh said the co-op is now trying to get its 12,500 farmer-owners in Europe – including 2,500 in the UK – to increase supply.
His warnings came as the UN Food and Agriculture Organisation said global butter prices have hit an all-time high, rising 14% last month thanks to higher demand for the fat and lower dairy exports.
The National Farmers’ Union dismissed Mr Tuborgh’s warning of shortages as “scaremongering” which “only serves to concern consumers”.
But a spokesperson added that farmers were not benefiting from record wholesale dairy prices and a buoyant market.
“Farm-gate prices have failed to keep up – a time lag we can understand, but the lack of strong upward movement in the farm-gate milk price is extremely concerning,” he said.
“The constant boom-and-bust dairy market cycle helps no one, most of all farmers who, at the bottom of the supply chain, are facing the biggest volatility risk.
“Farmers need to be demand-led, they need better market signals. Only a few months ago, farmers were being told there was too much milk: it’s gone full circle. This isn’t sustainable from a farmer point of view, and we need to find a better mechanism to work together with the processors.”