For the majority of UK milk producers, 1 April 2015 will come and go with very little significant change.
However, a few producers will breathe a sigh of relief. But for all producers, the events of the following few months in Europe could have a huge impact on the 2015-16 milk price.
Milk quotas were introduced in 1984 to curb an increasing supply of milk products within Europe. At that time, any surplus milk products qualified for subsidies and was commonly referred to as the “butter mountain”.
Now, some 31 years later, the world has changed and there is little or no EU/political intervention; although we did introduce “private storage” in this current milk year to deal with cheese and powder surpluses from Russian and other cutbacks worldwide.
The removal of quotas has very rapidly been replaced with commercial quotas and restrictions – these for most are called A and B quotas.
The logic and need for commercial production controls is very sensible. Just as a milk producer has to invest on-farm to get commercial growth in milk sales so does his milk buyer (ie, more production capacity is essential), and if more capacity is needed, this requires capital contributions from members or third-party investors.
So if you are either growing your output or commencing milk production it is not unreasonable that your milk buyer should expect you to make a contribution towards the cost of capital or a lower return (for a limited period) to cover the cost of someone else investing.
However, with no restrictions on output other than commercial logic, it would be constructive if milk buyers reviewed their contracts with the producers. At present almost all milk contracts in the UK insist on the buyer having the right to collect 100% of the milk from that holding. How can this be going forward? If a farmer wishes to grow his business and has a market with two buyers, he should be allowed to do so. What other farming business has contracted 100% exclusive commitments for their product?
If a milk buyer can buy and sell milk on to the open market, why can’t the milk producer?
The UK has not breached its total milk quota for more than 10 years. For the vast majority of producers, therefore, quota restrictions have become irrelevant. However, recently new producers have had to “gamble” on the UK not reaching quota and not investing – so 1 April could be a relief for them.
Within the EU, several countries of dairying significance (such as Germany, Holland, France and Ireland) have always been there or thereabouts close to their quota limit. These countries (and others) will see 1 April as a huge opportunity for growth.
Indeed, Ireland sees agriculture (particularly dairying) as the saviour of its whole economy and is planning for 50% growth. This year the Irish have dried cows off early, milked once a day and sold surplus stock all to ensure they don’t go over quota.
However, next month will take the brakes off production in these countries and that could lead to a major increase in European and global milk supply.
With supply and demand already in a very delicate balance (currently in favour of the buyer), milk prices post-quota could remain low.
In the end the fittest will not just survive but will thrive.
So on the UK dairy farm post-quota we can have no let-up in driving a good business and making economically sound business decisions on milk production levels.
Chasing more milk come April may not be a profitable solution unless your milk buyer can guarantee you a market for the milk.