Bleak outlook for dairying

THE UK MIGHT be 1bn litres below quota in less than five years and the smallest dairy farms will have been almost been pushed out of existence, says a new report.

Milk production is also likely to move northwards and out of Wales, says David Coleman, who announced his findings at the Dairy Supply Chain Forum’s Facing the Future conference held this Wednesday (Dec 15).

Prof Coleman based his predictions on three price scenarios. The first assumes the “incentive” milk price remaining the same as 2002/03 levels. Scenario two shows a price fall of 1p/litre by 2008 and 2p/litre by 2015. In the worst case, the price falls sharply by 2.5p/litre by 2008, but remains at that level.

Even using the most optimistic forecast, the number of dairy herds with fewer than 40 cows will have dropped from almost 5500 at the time of his 2002/03 report to only 1350 in 2008. By 2015 the number would be negligible.

Of those, nearly 3500 will have left and about 700 will have expanded. Of more concern, however, to those at the conference, was that almost 12% of the 2900 largest producers – with more than 150 cows – were also likely to quit milk.

Output would drop in England and Wales by 2015 under all of the scenarios, but would increase in Scotland and Northern Ireland.

Overall, Prof Coleman suggested that 5400 producers would call it a day, leaving fewer than 20,000 in business. But if prices fell more quickly, herd numbers could tumble to below 17,000 within 10 years.

But he said that even these numbers were less than some were predicting and also reckoned that some farmers would choose to use their single farm payment to support their businesses.

Because of this decline, milk supply was likely to fall below national quota within 3-4 years, and if the decline in prices was sharp enough the UK would be 1bn below quota by 2008. But Prof Coleman predicted that the producers who survived would push production back to quota by 2015, although this recovery would be precarious.

However, Gwyn Jones, NFU dairy board chairman, said: “I am surprised at the numbers. There will be more people leaving than he is suggesting. I have noticed a big fall in morale and what will it be like if commodity markets do drop as much as people say they might?”

Quota broker Ian Potter said many would not have enough money to invest in their businesses even using the SFP. He said the costs of complying with regulations like soil management and the Water Directive would be too much.

John Allen of Kite Consulting said retailers and processors should look at the figures carefully. He said they might struggle to get enough milk if Prof Coleman”s predictions of a drop in production were borne out.