29 September 2000

20p/litre target is

not likely…

PROSPECTS for milk price may be improving, but a 20p/litre price for all producers is unlikely in the short-term and quota deals or business decisions should not be based on it.

To break even and run their businesses in a sustainable way, producers need an average milk price of 20.2p/litre, according to Promar predictions. This would allow them to stop the falls in net worth seen for the past three financial years, Tim Archer, the companys national finance consultant, told visitors to the European Dairy Farming Event.

The Federation of Milk Producers John Loftus, who milks 260 cows in Lancs, warned that 2p/litre is not enough to bring producers to a sustainable position from which to invest in their businesses. "This rise hasnt been negotiated by producers and therefore could also be taken away as easily as it has been given."

A price of 20p for a standard litre for all producers is a long way off, believes William Hickson, who producers Channel Island milk in Kent.

And Shropshire producer Roly Tavernor is also cynical of milk price increases being discussed and expects prices to become more volatile in future, averaging 18-19p/litre.

"Dairies are currently fearful of a shortage of milk and are encouraging people to produce more. There will be more volatility and we have to accept that."

Andersons managing partner Tony Evans agrees that price fluctuations are more likely and producers must look within their business to cope with that.

"Potato, poultry and pig producers already have a deregulated market, so trade with ups and downs."

He believes a long-term solution will come from improving margins on farm and within the food chain. "Aim for efficiency, then go for growth."

But he is concerned about recent increases in quota leasing and purchase prices, following predictions of higher milk prices for this autumn. "There is no logic in the increase in quota prices and it does the industry no good."

Milk Link chairman Jim Harrison also believes spending more on quota, before prices are announced, is unwise. "Many think 2p/litre is in the bag and are already spending it."

Milk is in short supply, with daily production 7-8% down on prediction, Milk Link is 300,000 litres below its forecast collection.

Leics tenant farmer Nigel Smith also wonders what message recent increases in quota prices gives to the rest of the industry. It appears to tell dairy companies that as soon as producers are given more money they can afford to spend it on quota.

However, he is pleased with recent price increases. "A price of 18p/litre is our break-even point, but it still leaves no room for reinvestment from profits as a tenant."

Mr Smith has coped with low prices because his wife works and has tried to maximise output on his one-man unit, with 90 cows producing 700,000 litres. But he hopes further efficiencies of scale will be possible when he is moves to a larger council holding. At the new unit he is planning to milk 120 cows, producing 1m litres, without additional labour.

Mr Tavernor is also looking at improving efficiency in his 240-cow business, rather than expecting higher prices. "I have no influence on prices, so keep driving production costs down and expanding," he said.

Mr Hickson is also expanding to maintain his gross margin. This has meant investing in buildings and will mean buying a new parlour shortly, he says. "I am trying to take a long-term view. The low milk price is a short-term storm in a long-term career, so I am investing in a bigger unit for the future."

Hants producer Mark Maclay is also expanding his 190-cow herd. "Staying in dairying means expanding or getting out, so I have recently purchased quota for 16p/litre.

"The annual cost of repaying and servicing the borrowing for this purchase is 3p/litre over eight years; cheaper than the current leasing price."

PRICEINCREASES

&#8226 Prospects improving.

&#8226 Milk supply short.

&#8226 Needs divorcing from quota.

Roly Tavernor…cynical about price increases

Nigel Smith…

pleased with recent price increases.