By Simon Wragg
ESTIMATES that just over 20,000 milk producers will be left in the UK by 2005 are proving correct, according to David Coleman, professor of agricultural economics at the University of Manchester.
Speaking at the Brian Asbury Memorial Lecture at Reaseheath College, Cheshire, he said the exodus was being driven by a market where retailers and dairies maintain profits while producers were squeezed.
Comparing producer, processor and retailer margins from 1997 to the present day showed only farmers returns had fallen significantly.
For example, the annual farm business survey conducted by the university showed the top 25% of farms were making a net margin of less than 10ppl, while the bottom 25% were losing 2.5p.
If extreme efficiencies were made, the UK could fill its 14.2bn litres quota from 10,000 units getting a milk price of just 13.5ppl, argued Prof Coleman.
But that could not be achieved if dairy farms continued to pay over-the-top for quota, he added. Also, while feed costs had fallen, labour had increased sharply.
Peter Cook, head of the rural business unit at the Scottish Agricultural College, told the meeting Prof Colemans figures were stark, but hard to argue against.
To survive, dairy farmers would have to take radical steps to develop units which could maintain profits.
It would take “a leap of faith” for them to team up with neighbours to share labour and machinery. But this would reduce substantially the burden of fixed costs.
Intervention Board figures show that, at the end of March, cumulative production was 59m litres over quota.
After allowing for 19m litres which are being permanently converted from direct sale to wholesale, this figure comes down to 40m litres.
But three more adjustments are yet to be made the temporary conversion of wholesale and direct sale quota, the submission of final purchaser returns and the re-calculation of butterfat.
In the past this has usually resulted in a rise in the amount of quota available. But last year bucked this trend spectacularly, taking the UK from a provisional 1m litres under quota in April to 38m litres over quota by the time super-levy bills went out August.
A repeat of this would double the super-levy estimate of 9m (based on a charge of 22.05ppl). Alternatively, the bill could drop to zero.
But one thing seems certain. Thresholds will be much smaller this year.
“There was a lot more fine-tuning in the last few days of the milk year, with large numbers of small lots of quota changing hands,” says Tony Carver of Carver Knowles.