8 August 1997

GUARD AGAINST SACRED COWS

Milk price continues to fall, and the outlook is no rosier as prices remain under intense pressure due to the continuing strength of sterling.

At the time of writing, Milk Marques July selling round was expected to knock 3p/litre off the last (January) selling round. This could see prices, for some producers, down 4p/litre on the year. For a 6500-litre cow, the downward milk price spiral will reduce income by a massive £260 an animal.

With margins squeezed to such an extent, now is the time to guard against breeding sacred cows. There are those who are, for example, chasing high output a cow at all costs, without first considering the economic consequences of that action. For some units this route may provide the best returns, but for others a lower input regime could prove more attractive.

Without the cushion of a high milk price, careful scrutiny of the business is now necessary to check that the current system is the most profitable. And whatever the choice, rigorous control of both fixed and variable costs will now be paramount. Can you, for example, justify the machinery allocated to the dairy enterprise and the extra labour that it entails? Contracting may prove cheaper and simpler.

As for variable costs, as this Update explains, considerable scope exists to make savings. Take feed, for example. Better use of grazed grass, which itself depends on good access and flexible management techniques, will always help. And this year in particular there is scope to capitalise on plentiful forage supplies and on cereal and straights prices which are down about 20% on last year. Indeed, pundits suggest total feed costs could be at least 2p/litre lower this winter than last.

Theres no doubt future prosperity will depend on technical efficiency that ensures tight cost control and maximises performance. Get that formula right and business success will follow.