22 November 1996

Spiralling quota costs slash profit margins

ESCALATING costs of milk quota in the UK are cancelling out profits gained from increased prices, better use of genetics and higher yields.

Although average profits on the 135 dairy farms monitored by Genus rose by more than 20% to £36,000 in 1995/96 – the third highest since 1984 – quota prices are likely to substantially cut margins in 1996/97.

Average milk yields rose by 300 litres to 6075 litres during the year due to better genetics and higher concentrate use, while milk price rose by just under 2p to 25.12p/litre. But average herd size fell by three to 124, due to quota restrictions.

Launching the Genus farm business accounts annual review, director Tom Kelly said there had been the largest ever difference between the top and bottom quarter of producers. While the top 25% made average profits of £81,000, the bottom 25% suffered a loss of £2050.

Mr Kelly said the successful producers tended to have higher yields and larger quotas, while struggling dairy farmers were having to lease quota in an increasingly volatile market.

Future prospects look less buoyant. The effects of the BSE crisis, which have seen significant falls in calf and cull cow prices, higher concentrate costs and a halt to the rise in milk prices since market deregulation will all hit profits for 1996/97.

Quota leasing prices are set to rise from £104 per animal to £147 by March 1997, which will reduce the gross margin per cow from £919 in 1995/96 to just £863 in 1996/97, according to the report.n

Tom Kelly: Quotas cut profits.