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Milk price rise gives encouragement

Ian Ashbridge 01 January 2005
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James Bowditch and wife Emma have taken a belated honeymoon in Australia, leaving James’ father Robert to mull over recent developments in the dairy sector. Ian Ashbridge caught up with him


Reports of a rise in the retail price of milk have been well received at Bowditch Family Farms, but farm-gate prices are still not enough to allow the reinvestment the business needs, says Robert Bowditch.


News that dairy farmers could benefit from an extra 1p/litre after Tesco decided to increase the retail price of its milk have given some encouragement. “It’s none too soon. We’ve just completed our dairy budgets for 2007-2008 and we’ve had to include rises of £20-£30/t on key constituents like soya, rapeseed and wheat.”


Bioethanol


America’s enthusiasm for bioethanol plants has also created demand for wheat and soya, pushing world prices up. Mr Bowditch fears that, with a similar enthusiasm building in Europe, straights prices will be pushed even higher by the biofuel demand.


“So, however much of that price increase finds its way back to farmers, it’s not going to go very far,” says Mr Bowditch.


“Supermarkets and milk processors have to understand this. All our costs are rising, including electricity and fuel. That 1p/litre is desperately needed to cover increased costs, but it’s still not enough to allow farmers to reinvest for the future of their businesses.


“In the last six months, two members of our local buying group alone have left dairying. And we hear that another 250-cow unit may have gone in the last two weeks. These are big things happening,” he says.


Reinvestment


Of the three dairies in the family business, Laverstock Farm needs the most significant capital reinvestment. “The parlour, plant rooms and cubicle sheds are coming to the end of their life. It’s going to cost at least £250,000 to replace them. Written down over 20 years, that’s basically a 1p/litre capital cost for 20 years.”


The dairies at North Bowood and Cooper Dean Estate are adequate, but would benefit from about £50,000 in refurbishment to get them to an ideal state.


But while the dairies need the largest investment, there are other areas of the business to consider. The Bowditch’s New Holland TM150 tractor will be the next to need replacement at a cost of about £35,000. The machine has reached its half-way depreciation mark, and should be worth about £18,000 of that total bill.


“I’m hoping it will last us another 12 months, or at least until the autumn, to give us a financial break before reinvesting. I’ve looked at Mr Fendt’s and Mr Deere’s offerings, but we are well served here by New Holland through Francis Bugler at Beaminster and, as the new tractor will run our mowers and drills, I want to wait until the new headland management systems are available.”


Positive


Arla Foods UK buys the farms’ milk and Mr Bowditch believes the nearly complete take-over by its Scandinavian parent company Arla Amba is a positive move. “It’s a hugely successful, farmer-owned business and hopefully that direction will become part of how Arla operates in the UK.”


Mr Bowditch senses that “things have been on hold” with Arla in recent weeks, as the buy-out deal is finalised, and the milk buyer’s messages to farmers have been confusing. “There have been several changes to contracts, and as producers we need to know exactly what Arla wants – we need detail and direction.”


However, he welcomes Arla’s recent announcement that it will guarantee its members a price floor, linking its liquid milk price to the equivalent value of the two commodity milk products it trades in – salted butter and skimmed milk powder.


The Arla Foods’ milk price equivalent, based on the industry-recognised actual milk price equivalent (AMPE), will ensure Arla’s liquid milk suppliers get a 2p/litre premium over the equivalent value of Arla’s commodity milk. “It gives us hope for more stability,” says Mr Bowditch.


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