6 December 1996

Counter milk price

drop or else…

The need to improve dairy and beef production efficiency through better use of top genetics, grazed grass and high-quality silage was the clear message from the British Grassland Societys winter meeting , Grass and Forage for Cattle of High Genetic Merit, held last week at Malvern, Worcs. Jessica Buss and Jonathan Riley report

IMPROVEMENTS in dairy farm efficiency will be paramount if producers are to survive the drop in milk price predicted by the NFU over the next 10 years.

Without efficiency improvements by the year 2005, average dairy farm profits would be a quarter of those achieved in 1996, Genus director Tom Kelly told the audience at the BGS meeting.

"Average dairy farm profits would fall from £19,700 in 1996, to £11,700 in 2000, and down to £4800 in 2005," said Mr Kelly (see table). But he acknowledged that some producers would save significantly on quota leasing costs when quotas stopped.

An NFU study concluded that a cut in prices and the removal of quotas was the best option for dairy farm incomes, declared Mr Kelly.

But the study predicted that, even on this best option scenario, gross margins would drop by £100 a cow by the year 2000 and a further £100 a cow by 2005.

Mr Kelly claimed that while average herd size was currently decreasing, by 2005, it would increase if quotas were removed. Keeping more cows and inflation would also see overhead costs rise by 2005.

"Little attention is made to the full costs of milk production," he said. "Some of the systems being used for feeding cows, for example, are very expensive to run in terms of labour and machinery.

"When the economic squeeze begins to bite dairy farmers must take a long hard look at costs first. There is no doubt they can be reduced."

He claimed that the difference between average profit and top 25% profit farms on Genus Farm Business Accounts is in the output – total costs were similar. So output was a key factor in profitability, he said.

Producers must increase efficiency to cope with falling dairy farm profits over the next 10 years, advised Tom Kelly, Genus director.


Profit predictions without efficiency improvements:

199620002005

Gross margin

£/cow900800700

Herd

Size777586

GM (£000)69.360.060.2

Overheads

(£000)49.648.355.4

PROFIT (£k)19.711.74.8