Milk Price Review Poor performers must act now

By Robert Harris

TOP dairy herds can still produce healthy incomes, according to the latest dairy farm costings from ADAS. But poorer performers must act now to survive.

Average profit for the top 25% of costed herds, each milking 130 cows on average, exceeded £60,000 a year in 1997/98, says ADAS head of dairying John Allen.

Although that profit is likely to drop by about £20,000 this year, this still represents a reasonable return, he maintains. Key to success is high output – yields averaged about 7000 litres in the group – and low costs.

“The results vindicate our message that output with tight cost control is the best way to deliver profit,” he notes. Rent, finance and leasing costs in the top quartile of businesses were 3-4ppl lower than the bottom 25% last year (see table). The overall profitability gap is likely to widen by a further 0.5-1ppl this year, he adds.

Dairy costings (ppl) 1997/98
  Top 25% Bottom 25%
Variable costs 7.98 9.88
Fixed costs 8.64 9.23
Rent, finance 3.18 6.23
Profit 7.19 0.27
Source: ADAS

“Lower leasing costs have often been brought about by a sound quota acquisition policy, taking account of longer term issues for milk quota and all the risks associated with continuing to lease quota.”

Poorer performers must assess their commitment sooner rather than later, says Mr Allen. “Anyone who is not aiming for excellence would do better to pack their bags and go now.”

Those determined to stick it out should gain control of finance and quota costs, he advises. Banks can provide competitively priced funds to help businesses restructure and grow. Long-term finance is available at 7% or less, and is likely to fall further if the Euro is a success, says Mr Allen.

  • Milk prices for November deliveries show only minor changes on the previous month. Milk Marque announced a trading bonus for the second month running, up 0.1p to 0.5ppl.

    Scottish Milk has moved to Bactoscan, instead of TBC, with a 0.3ppl top band for counts below 50,000.

    Unigate has reduced its protein rate from 1.552p to 1.44p a %.

    January 1999 for November 1998 deliveries (updated monthly)

    COMPANY This
    adj (ppl)
    litre (ppl)
    Av price
    Nestlé Scotland138.7811.502.0021.6519.93
    Wiseman Scotland211.360.281.5021.2419.93
    Midlands Co-op360.000.000.0021.1821.26
    Lancashire Dairies480.000.000.0020.6220.65
    AW Foods Scotland (Lockerbie)557.6211.451.2020.4419.25
    Golden Vale6108.8810.00P0.0020.1920.38
    Wiseman England8100.900.100.0020.1020.10
    Scottish Milk997.8310.731.5020.0018.69
    Express Dairies10127.2711.13P0.0020.0020.09
    MD Foods (Premier)11138.203.25P0.0020.0020.00
    AW Foods Waterford (“PSL” contract)12140.000.090.0019.7820.08
    AW Foods (Avonmore)13140.200.25-0.6019.7520.42
    The Milk Group14168.8210.620.0019.7419.74
    ACC (Stockton)15187.399.910.0019.5919.78
    Wyke Farms16197.9810.860.0019.5918.85
    Unigate – EODC17204.104.68-1.0019.2520.98
    South Caernarvon18178.1211.170.0019.1619.37
    Nestlé England (Dalston)1928.7811.50-0.5019.1520.03
    Southern Co-op201510.089.58-0.8018.9621.27
    Aberdeen Milk21210.600.250.0018.8418.64
    Milk Marque – EODC22227.7110.340.0018.4218.08
    Milk Marque23237.7110.340.0017.9217.58

    Wye College

    Source: WYE COLLEGE
    University of London

  • All prices are before 0.04ppl Milk Development Council levy

  • Price per standard litre is after transport and marketing charges, assuming daily collection of milk, 4.1% butterfat, 3.25% protein, 1101 litres/day, TBC below 20,000 and cell count below 250,000

  • For AW Foods Scotland (Lockerbie), AW Foods (Avonmore) and MD Foods, figures include minimum group bonus paid to over 95% of farmers

  • For Unigate – EODC, the price includes “6 keys”; top “general compliance” score; top “farm inspection” score; 0.3ppl group bonus; “sovereign supplier” bonus; group term bonus; and milk collected every other day

  • For South Caernarvon, the price includes a 0.3ppl bonus for compliance with Freedom Foods five freedoms

    P=payment for protein capped (at 3.3% for MD and Express, 3.35% for Golden Vale)

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