Dairy costs much worse than farmers think

By FWi staff

DAIRY farmers are losing more money than they think, claim the Royal Agricultural Society of England and accountants Deloitte and Touche.

Farmers believe production costs are about 15ppl, when in reality they are closer to 22p after rent and finance, reveals a survey carried out last spring.

Mark Hill, national partner of Deloitte and Touche Agriculture, described the figures as alarming considering the average milk price is around 16ppl.

“They are neither sustainable for the individuals, nor for the UK dairy industry as a whole,” he said on the eve of the Royal Show (Sunday, 02 July) at Stoneleigh, Warwickshire.

“Too often, dairy farmers ignore overheads of rent, finance and quota, leading them to think they are making a small profit, or at worst breaking even.”

The survey reveals that the average cost of producing a litre of milk is about 16.9ppl before rent and finance, and about 21.9ppl afterwards.

But for farmers with cows producing less than 6000 litres per animal, the total cost soars to 27ppl.

There are just three options for those farmers willing to face up to this problem – grow, get together or get out, said Mr Hill.

But there can be some negative knock-on effects for farmers choosing to grow their businesses, he warned.

“Cost per litre may come down one or two pence, but that is unlikely to justify the increased risk.”

Mr Hill believes savings of as much as 3ppl are possible when farmers get together and co-operate with other milk producers to run their dairy enterprises.

Joint ventures, where two or three businesses come together, can generate economies of scale, free up time and capital and reduce business risk, he said.

And although getting out of dairy farming might not be a palatable solution, but for some it may be the only option for some producers.

With current losses eroding capital built up over a lifetime, delaying the decision will be costly, said Mr Hill.