Recent declines in UK milk production have been taken by some in the industry as a threat to the liquid milk supplies. If milk output continues to decline - likely following the wet summer, which made silage and hay production difficult - the question of supply arises. Fortunately, the table suggests there will still be adequate milk, even if output remains 5% below 2006 levels, as in July. However, there will not be a large reserve to meet fluctuations in demand and it is likely milk will not always be available in the right place at the right time later this year. This will create costly logistical problems as large volumes of milk have to be moved about. Even if the risk of shortages is low, the high cost of milk is a major problem. The value of milk used for manufacturing has escalated beyond all recognition over the past year. The value of milk used for butter and cheese is up by more than 80%. The value of milk used for the liquid market, which normally stands at a premium over manufacturing milk, is now at a substantial discount of up to 10p per litre. While prices are being increased, there is a danger that the liquid market will lose its priority and milk processors may find it more lucrative to make butter and cheese instead. All those in the industry are hoping that normal price relationships can soon be restored in order to avoid a situation in which the consumer finds the shelves empty of liquid milk or with limited choice. For those who believe that the recent price escalation is a short-term 'flash in the pan', there is plenty of evidence that the higher prices will last well into 2008, if not into 2009. Similarly, those who suggest that imports could replace any lack of UK-produced liquid milk supplies should be aware that the spiralling market has affected the whole of the EU. Michael Bessey

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