UK farmers face £330m payment gap as costs outstrip prices
The NFU’s Cost of Milk Production report claims that British dairy farmers are on average losing 3.16 pence on every litre of milk they produce.
With 11bn litres of milk produced annually on dairy farms across the country, this equals a “massive” £330m gap between production costs and the price received by British dairy farmers, according to the NFU.
To produce the report, the NFU invited six independent industry consultants to provide data covering 809 dairy units.
The figures are based on the average cost of milk production for the period April 2010 to March 2011 and the average British milk price in November 2010.
“With a current differential of 3.16ppl, it is clear that the gap between the cost of milk production and the price paid for milk has widened over the last twelve months,” said the NFU.
The NFU said the biggest factor adding pressures to the “struggling” sector is a huge increase in feed and bedding costs, for example, feed costs in 2010-11 are forecast to be 16.6 per cent higher than in 2009-10.
NFU dairy board chairman Mansel Raymond saidthat although prices have started to move up, some milk buyers have told their farmers to expect only a penny increase.
“That’s a drop in the ocean given the scale of the price problem we are faced with. I am seriously worried that for many dairy farmers it will be too little, too late,” said Raymond.
Jim Begg, Dairy UK director general told this publication that he "hugely regretted" the significant impact that the rising costs of producing milk are having on dairy farms.
“I also hugely regret that these cost increases cannot be recovered automatically from the market place, but that is the reality.
For me, this reinforces the fact that it is the management of volatility on costs, almost more than the management of volatility on returns, that will be vitally important as we go forward," he said.
Struggle to turn a profit
Defra’s 2009-10 farm business income figures show a 19 per cent fall in dairy farm operating income year on year (from £69,000 to £56,100).
Dairy farms are expected to see a 24 per cent fall in farm business incomes and that net margins are also likely to fall by around that figure, according to 2010/11 Defra forecasts.
According to Dairy Co, producer numbers for England and Wales in December 2010 stood at 11,041. This is a fall in dairy producer numbers of 461 or 4.0 per cent over the last 12 months.
“Looking at the figures on a regional basis, the largest numerical year on year decrease was seen in Wales with producer numbers falling by 103 (5.0 per cent) between December 2009 and December of this year,” said Dairy Co.
David Swales, DairyCo market intelligence told DairyReporter.com: “Declining farm numbers is an ongoing trend across all sectors of agriculture, and is a trend not limited to the UK. About five per cent of dairy farmers go out of production each year.”
Evidence from the DairyCo Farmer Intentions Survey shows that many of these farmers retire without having a successor in place, or take up other agricultural activities.
However, Swales said it is important to note that in recent years the UK has not lost milk supply. This is because those farmers that remain in the industry have made enough margins to be able to invest and expand their production, he explained.
“Over the past few months farm input costs have risen sharply, with farmgate milk prices going up more modestly. As a result more farmers will struggle to make any form of return,” he said.
