Low prices threaten long-term dairy businesses

By FWi Staff

Unless farmers are paid more for their milk they will not have enough cash to fund reliable supplies of competitively priced milk, warns Steve Ellwood, head of Agriculture at HSBC Bank.

Although big dairy farmers cut production costs by an average of 2p/litre in the year to April 2000, according to the latest Spotlight assessment by ADAS and HSBC Bank, they are still in trouble.

After allowing for other income, mainly livestock sales, the break-even milk price is 18.5-19p/litre, compared to a farm-gate price of no more than 17p/litre, says Mr Ellwood.

“Despite their best efforts and even after reduced very modest private drawings, the average producer is still losing money.”

Farmers in the study milk 160 cows on average, producing over 1m litres of milk a year.

“Even the top 25% of these have been generating inadequate profits to meet capital and reinvestment requirements needed to sustain their long-term businesses,” says ADASs Bill Hall.

Yet this group produced milk for 4p/litre less than the bottom quartile, he adds.