14 September 2001

Penalty for low butterfat levels

By Robert Harris

FALLING butterfat levels in the national milk supply could trigger unexpected super-levy penalties for some low butterfat producers if the UK exceeds quota this year, warns farm business consultant Andersons.

Over the past five years, UK butterfat content has dropped from 4.08% to 4.01%. So far this year, the cumulative figure has dropped a further 0.3%.

"If this trend continues the UK could fall below its butterfat base – currently 3.97%," says head of research, Francis Mordaunt. "This would have important implications on who pays super-levy – but only if the UK exceeds its quota."

Rather than adjusting milk deliveries for butterfat content for quota purposes at the end of the milk year, if national butterfat base is not exceeded, individual producers make no adjustments, but simply compare their volume of delivered milk to their quota.

This would mean low butterfat producers, especially those on "white-water" contracts, would not be able to make any downward adjustment, and could be liable to super-levy which they have avoided in previous years, he warns.

However, Mr Mordaunt believes that scenario is unlikely to be triggered this year, as national milk output is unlikely to exceed quota, with missed inseminations last spring likely to hit milk production this winter.

"But it is certainly worth keeping an eye on. If we are entering an era of low butterfats, some producers could come unstuck in the future – it is a bit of legislation that is easily forgotten."

Latest provisional milk output figures from the Intervention Board show that dairy farmers delivered just over 1.14bn litres of milk to processors during August.

Cumulatively, that takes output slightly above 6bn litres for the first five months of the milk year.

No butterfat adjustment is needed, as butterfat % for both figures matches that in the Charles Holt Consultancy/farmers weekly quota profile (based on average monthly figures over the past five milk years and last years butterfat profile).

This means August output was 9m litres below quota, and the cumulative shortfall now stands at 115m litres.

That is almost 44m litres less than last years deficit, though wholesale output ended up 273m litres below quota in 2000/01 after allowing for adjustments for direct and wholesale transfers.

"My guess is we still wont make quota, although I think milk production is going to start to pick up," says Mr Holt. The gap between milk prices and quota has never been so great, and silage is of good quality, so producers will be pushing hard, he adds.

"We will see the odd month above profile. But it will be a real struggle to make up the huge deficit from April and May."

Quota to lease (4% butterfat) has eased to 0.75p/litre, and permanent transfer (also 4% butterfat) is worth about 15.5p, saysMr Holt. &#42