22 March 1996

HOW GOES IT IN EURO-LEAGUE?

Where do UK dairy farmers rank in the European milk

production league? Tom Kelly, director of Genus management, compares results from a "Euro-Club" of producers

IN 1976 Dutch farmers were getting higher prices than producers in the UK, and they were producing milk more efficiently from grass and high dry matter silage. They were also getting a much higher milk price.

However, the prices of almost all their inputs were much higher than here – particularly the cost of labour. So there was little difference in final profitability.

Twenty years later a Europe-wide group of farmers has got together to make comparisons between countries and learn from each other. The club of European Dairy Farmers (EDF) is backed by the German Institute of Farm Management (FAL).

Larger farms

One important complication is that club members are not themselves "average" dairy farms, but more usually among the larger farms from their countries. Herd sizes are much bigger than national averages.

Those farmers willing to get down to the detail required run quite large businesses by the standard of the countries they represent. Participating farmers complete a questionnaire each year.

All costs and returns are converted to Ecu. Problems also arise because presentation of accounts varies between countries.

However, even allowing for all those problems, significant real differences between countries do emerge. By expressing the results as costs and returns to produce 100kg of fat corrected milk, meaningful comparisons are possible.

Results are averages from the 56 herds taking part (see table).

With low yields by European standards, UK farmers shared with East Germany, Europes lowest milk yields in the accounting year ending in 1995. Fortunately actual cash costs were significantly lower than those of all the other participants apart from the Irish.

Even so, only producers in East Germany and France are making a lower cash margin a kg of milk than we are. If the cost of family labour and interest on investment is included, West German and French producers both made a loss.

When figures are expressed as enterprise profit, Ireland is the most profitable, followed by the UK. That is where our better herd size and labour efficiency show through.

A number of complicating factors remain. Care is needed because depreciation on buildings features in most European account presentations, whereas it is a minor item in most UK accounts.

Many dairy farms in Europe employ no labour, and consequently the amount of family labour is significant. Wages and associated social costs are much higher in Europe than they are in the UK.

Fig 1 shows how the Europeans look at their dairy enterprise to see whether it is giving them a wage comparable to the national average for the hours of work they and unpaid members of their family have contributed.

This figure emphasises the better structure of dairy farms in the UK and as a result their more efficient use of labour. It also highlights that our wages are low.

In Germany, France and Holland dairy farmers and their families are not achieving rates of return comparable to wage rates for qualified farm workers for the hours of work they put in.

This gains added significance from the fact that these are larger than average farms. To make even a modest profit, smaller herds need, by world standards, a very high milk price.

Fig 2 attempts to answer the question many farmers ask – "What is my return on capital?" Some very broad assumptions have gone into the figures and the valuation of quota and buildings varies a lot from country to country. But where there is a high degree of mechanisation and investment with a relatively small herd the capital costs a cow or a kg of milk are clearly high.

Family labour

When the cost of family labour plus interest on capital invested is charged, the Dutch, French and West Germans are clearly getting modest returns on their money. They rely heavily on family labour and are obviously not in it mainly for the money.

Given the difficulty in interpreting the data, it is a clear and safe conclusion that Ireland and the UK currently have the lowest cost of milk production in the EU. The smaller continental herds need a high milk price to survive.

The UK and Ireland are able to get by on lower milk prices and are therefore making good profits at the price level needed to sustain farm incomes in Europe.

&#8226 Any UK dairy farmer who is interested in joining the club of European Dairy Farmers should write to: EDF – Eschborner Landstrasse IZZ, D-60489 Frankfurt Am Main, Germany. &#42


How European dairy farmers compare

Germany

WestEastBelgiumDenmarkFranceUKNetherlandsIreland

Number of farms in survey964328204

Cows a farm84674731107525992115

Milk yield (kg FCM/cow)68155943707673237591591780644915

Total returns*(Ecu/kg FCM)39.433.641.641.935.132.638.136.7

Of which milk30.228.233.232.329.228.332.728.9

Cash costs24.429.823.230.025.920.923.717.9

Final Farm income15.03.818.414.99.211.714.418.0

Value of own labour/

interest on capital19.32.414.69.011.07.112.51.0

Total costs43.732.237.839.036.928.036.228.9

Enterprise profit- 4.31.43.82.9- 1.84.61.97.8

*All financial data as Ecu/kg FCM. 1 Ecu = 85.6p. FCM = Fat corrected milk.

Tom Kelly:"It is clear that Ireland and the UK currently have the lowest cost of milk production in the EU."