UK milk production facing 'worst case scenario', says study
producers leave the market than previously thought, presenting
potential supply problems that could raise costs across the
industry, reports Chris Mercer.
Britain's milk production is likely to fall to 13.3bn litres by 2007/08, 1.1bnl below national quota, because more of the larger producers are leaving the industry than originally expected, says a new report supported by Britain's agriculture ministry, DEFRA.
The report, led by Professor David Colman of the University of Manchester, found that 45 out of 363 producers originally surveyed in 2003 had left the industry.
Those that remained have increased their milk output by 5.3 per cent since April 2003, yet this growth "has been insufficient to offset that lost from producers ceasing production".
And another 25 producers in the sample said they intended to quit in the next few years, while 24 said they were uncertain about their future in dairy.
The news could mean supply shortages hitting some areas of the UK dairy industry over the next few years; putting ever greater cost pressures onto processing firms already balancing cost rises and retailer price cuts.
The UK currently sits around 276m litres below quota, though this has risen continuously for at least nine months, according to the Milk Development Council (MDC). "Production is failing to increase at its normal rate for this time of year," it said recently.
A spokesperson for the MDC said there were "a million and one different reasons" why producers might decide to quit the sector, but the prices they were paid was inevitably a factor.
"In light of the fall in current production levels, this report probably does make people sit up and think a bit more about how much further prices can fall before you see a significant drop [in production].," he told www.DairyReporter.com.He said that it was, however, very difficult to predict the future market situation.
Britain's three major milk processors - Arla, Dairy Crest and Robert Wiseman - have all made cuts the price they pay for liquid milk since June.
Yet, liquid milk is expected to do better than other sectors amidst the production drop because it is generally more lucrative for producers.
One positive factor for the UK dairy sector could also be its growing reputation for efficiency after much rationalisation. This, according to Tom Heind of the National Farmers' Union, has helped put those left in the industry in a good position to cope with the EU's CAP reform.
Heind, the NFU's chief dairy advisor, said he thought more reforms may emerge from a European Commission review scheduled for 2008.
A recent round of Commission forecasts said that milk production in the EU-25 was set to increase slightly to 145m tonnes by 2012.
