BE POSITIVE ABOUT FUTURE
THINKING positively about where dairy businesses will be in future and being aware of potential threats and opportunities will help producers pull out of the current milk crisis.
According to Cheshire-based independent consultant David Hughes, milk prices are improving gradually. Steps to form larger regional co-operatives could only improve the supply price situation, he told delegates at a recent meeting at Tarporley, Cheshire.
Future threats must be put into perspective. Although CAP reform and enlargement of the EU is on the cards, it is unlikely to happen before 2003. WTO talks have also been scheduled, but freeing up of international trade is not going to happen overnight: "The last time many producers heard of the WTO was at Seattle when the meeting was unable to even agree an agenda for the next round of talks."
So where did dairy producers want to be in the next five to 10 years? There were five options, he suggested. High output herds producing over 1m litres a year from cows yielding 8000 litres and calving all year round would be serving the liquid milk market. Low input units, probably with seasonal production, would serve processing markets and have to accept a slightly lower milk price.
Organic production should not be dismissed with three-year contracts still being offered at 31p/litre, although paperwork burdens would be a fact of life, he said. There would also be part-time dairymen bringing income from a second job off-farm. And, last, ex-dairymen, as "we cant all continue forever".
Even the top 10% of producers realise they cannot survive on the narrow margins being made now, he advised.
Typical herds are achieving 17p/litre for milk with variable costs of 7p/litre and overheads of 11p/litre, meaning losses of 1p/litre, are a fact of life. "Even with their lower variable and overhead costs the best units still only achieve 3p/litre profit which is woefully inadequate to cover private drawings, income tax, capital loan repayments and allow re-investment."
But all herds need to examine where costs have slipped, he warned. Few herds were achieving 4000 litres from grass – the cheapest feed – and that included the top 10%.
Culling rate slip
Culling rates were also slipping out of control. These were typically poor at 33% – costing herds achieving 6000 litres a cow 3p/litre where heifers were bought in at £800 and culls sold for £250.
Where replacement rates were 20% in herds yielding 7500 litres costs were down to 1.5p/litre. "Most producers would kill for that difference on their milk cheque."
Labour was still a huge burden. Few farms were getting anywhere near to the target of 500,000 litres a man, and that included the owner/occupier. In short, labour costs should not exceed 15% of total output. "But many producers need to improve their management of staff. Who can say their unit operates as a team?"
Often staff need motivation and training, both of which are lacking, although there was MAFF funding available to help with the latter, he added.
"It is imperative that producers know where they are going, think positively, plan ahead and try to be the best," he said. *
• Think positive.
• Use grass.
• Cut cull rates.
• Improve labour.
• Worst is past.