Milk price must increase if dairy farmers are to profit

Specialist dairy farmers could lose money next year even after taking into account their single farm payments, according to new figures from Andersons.

The farm business consultant’s findings are the latest of several studies which show dairy farmers need a better milk price to survive.

Anderson’s model Friesian Farm costings (see table), released at this week’s RABDF Dairy Event, show profits falling from 1p/litre last year to 0.6p/litre for the 2006/2007 milk year.

By 2007/2008 they will have slipped into the red by 0.1p/litre unless milk prices increase.

Without the SFP and environmental payments, farmers were already losing 1.8p/litre, said the firm’s Francis Mordaunt. “We think most businesses are already eating into their single farm payments and these are set to fall.

Before finance and rent you have got to be a very good farmer to make money without the SFP.”

Mr Mordaunt said it was a sad situation. “Dairy farmers were one of the groups that should have been able to farm profitably without direct support because they had received very little until the advent of the single farm payment. Now they are the Cinderella of the industry. There is much more buoyancy in the arable, beef and sheep sectors.

“The retailers have restored their margins following the Asda-led price war and processors are passing on their cost increases to the farmer, but farmers have nowhere to pass their increase in feed, fertiliser, fuel and labour.

There needs to be a more equitable share of the profits.”Since June 2002 retail prices had risen by 19.5% while farmgate prices had dropped 1.3%, he said.

Milk producers were caught in a cost-price squeeze, said Mr Mordaunt. Average milk prices had fallen by 0.8p to 18p/litre, while feed, fertiliser and energy costs had all risen.

One milk buyer who did not want to be named said farmer inefficiency was part of the problem. “You see the huge differences between the top 25% businesses and the rest.”

However, Mr Mordaunt said the firm’s model farm would probably be in the top quarter of producers.

“This is not a sustainable situation. The worry is that we are now seeing the good farmers saying ‘why should we carry on?’ and questioning their future in the industry. There are often opportunities to employ their energy and substantial capital.”

For example, Mr Mordaunt said the firm’s 103ha (254-acre) model farm (see box) had an investment of £500,000 and the anticipated return on this capital was only 1.4% in 2006/2007. “Would the big four supermarkets or, for that matter, Wiseman or Dairy Crest, be happy with this level of return?”

Richard Weaver of direct supply group Dairy Crest Direct said that some of his best-performing members with good reputations had already quit dairying and more were seriously thinking about it. “You have to wonder where the extra milk is going to come from.”