UK dairy farmers face mounting productivity pressure

Related tags British dairy farmers Milk Dairy farming Cattle

Mounting pressure from both the domestic UK market and the
increasingly competitive European dairy sector, has recently led a
number of British milk producers to successfully lower their unit
costs of milk production, but will this trend continue? Tom
Armitage reports.

In an attempt to establish an accurate view of the unit costs of milk production, financial group HSBC, in conjunction with UK management consultancy firm ADAS, conducted a survey among 97 so-called specialist dairy firms - referring to UK dairy producers with more cows and higher milk output than average UK farms.

Analysts discovered that although the majority of farmers questioned in the survey have successfully managed to lower their production costs by an average of 0.5p per litre, two in five have seen their owner equity - defined by ADAS as 'the value of a farm owner's assets after all liabilities have been met' - eroded over the previous year.

Looming EU Common Agriculture (CAP) reform, which will see the implementation of single farm payments in 2005 (as opposed to payments based on production quantities), has left European dairy producers looking at alternative ways to bolster their milk quotas.

And according to the research, nearly 75 per cent of farmers involved in the survey have increased their borrowing spend - something which HSBC believes is inevitable in leading to a successful restructuring of the UK dairy sector.

"The spotlight data confirms the pressures currently facing the sector. Both the HSBC and ADAS teams will be working closely with individual farmers to help them review their unit costs and improve efficiency,"​ commented Steve Ellwood, head of agriculture at HSBC bank.

"We shall also be sharing the data with manufacturers, processors, food retailers and food service companies so that they are fully aware of the pressure at farm level,"​ he added.

It appears, however, that over the coming months farmers will find it increasingly difficult to further lower their operating costs, with mounting fuel, power and insurance costs putting additional pressure on British dairy farmers.

The report also suggests that maximising returns from the market-place is as important as maintaining a tight-grip on cost control, although this is an increasingly difficult area for smaller producers to penetrate. Most major milk supply contracts to UK multiples, for instance, have already been snapped up by major dairy groups such as Arla Foods and Robert Wiseman.

Martin Wilkinson, head of business management for ADAS, claims that although there has been a successful industry-wide drive to increase efficiency, there "still is a 26 per cent range in the cost of production between the top and bottom 25 per cent of producers."

Furthermore, he warns that "those wishing to remain in dairying need to drive inefficiency out of their business, which they can only achieve by understanding the current position and putting a strategy in place to address costs and invest in business."

Although the study takes into account an extensive range of factors in establishing the unit cost of milk, for example the cost of partners' drawings, it does not make any detailed analysis of the farmer and family labour input.

Speaking to​, John Sumner of the Royal Association of British Dairy Farmers (RABDF), noted that "taking into account the cost of a farmer's own labour can increase the unit cost of a litre of milk by as much as 20 per cent." He added that the RABFD would be releasing its own data set on this area early next year.

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