Why can some dairy farmers produce milk for 20p/litre at a profit while others want 30p to avoid making losses?
The pat answer is that those happy with 20p are much more efficient than those who need more. And there is little doubt that therein lies part of the answer. Some of the difference might be accounted for by scale of operation, but there is a big gap between those who manage their cows better, get their bulk feed and their concentrates properly balanced, buy requisites at the best prices, and those who don’t.
But it isn’t as simple as that. Some farmers inherited holdings free of debt and have maintained that status since and pay no bank charges. They may even be lending money to the bank at certain times of the year.
Others have purchased their farms recently and have mortgages on inflated values. Or they may be tenants with landlords who demand ever-increasing rents despite the price of milk. Further, they have sizeable overdrafts with their banks as well. And although interest rates are low, which reduces bank charges for the time being, that burden of debt still hangs over their operations.
It’s not rocket science to assess the huge difference in overheads between those two extremes. And yet both have to sell their milk into the same markets – a discrepancy not always understood by those not involved. Milk buyers take no account of such matters in their pricing. They are guided by world supply and demand, and bluntly – it’s the devil take the hindmost.
In simplistic terms, this favours long-established producers who have had time to construct financially secure businesses and penalises young farmers who have not yet achieved such a state. But it seems to me that as many senior dairy farmers as younger ones are giving up the fight to stay solvent and selling their cows.
Perhaps the young are more determined than their seniors and try harder to make a difficult situation work before bowing to the inevitable or bank manager’s instructions. Perhaps those who are older are fed up and jaded after years of battling against the odds and maybe bank instructions have a role with them, too.
In any event, informed commentators are predicting that the 10,000 (or fewer) dairy farmers who are in business now are likely to halve in number within five years.
What a sad commentary on market forces and the lack of measures to provide stability or protection from imports. For make no mistake, the shortfall left by those who can no longer survive will be filled by multi-hundred cow herds (or multi-thousand if they can get planning permission) and imports from Ireland and other countries where support is still provided. And downward pressure on prices will continue until even the most efficient cannot survive. We will have exported a huge chunk of home production and reduced still further the level of our self-sufficiency.
So, where is all this leading? I am reminded of what happened in America. First poultry and then pigs were subject to intense price pressure by those who bought from them. Many farms producing them went out of business and those left became bigger. When these big farms became unprofitable they were taken over by processors seeking to expand along the food chain. Such vertical integration meant farmers became virtual employees of big processors. It’s happened to a lesser extent with pigs and poultry in Britain too, and maybe milk is next. And who knows which other commodities might follow?
* David Richardson farms about 400ha (1,000 acres) of arable land near Norwich in Norfolk in partnership with his wife Lorna and his son Rob