8 December 2000

Farmers to take over processing

MILK producers should aim to get into processing, but their farmer co-ops could live with a lower return on capital, according to leading banker Donald MacRae

He told the Scottish Dairy Conference that milk processing was increasingly unattractive to PLC interests and the majority of dairy processing would be farmer owned within the next 10 years.

"It is 62 years since milk boards were formed, 27 years since we joined the EU and 16 years since the introduction of milk quotas. Yet we have half our dairy farms making a loss, a cost structure which means we cant compete on world markets, and quota as a major overhead," said Prof MacRae, strategy and development manager with Lloyds TSB, Scotland.

He warned that there was little future for any organisation that simply collected and sold raw milk. "However, there is plenty of scope for expansion into milk processing. It may begin as a joint venture with an existing company and it would be better to invest in or take over an existing company than to start a new one."

Prof MacRae also said most herds with fewer than 100 cows were unprofitable and only those at the top end of the efficiency league could compete at world prices.

His sample of 75 farms showed 33 making a loss of which 26 had fewer than 100 cows. He also said that a break-even figure of 16p/litre meant little. The real challenge was in attacking overheads and boosting turnover and he quoted a £70,000 profit gap between the most efficient 25% and those at the bottom. &#42

PRODUCERPROCESSING

&#8226 Should be farmer owned.

&#8226 Consider joint ventures.