Measuring farm costs vital to future of dairy industry

Farm productivity must improve, with an increase in yield from forage of just 600 litres a cow offering an extra £60-£70 million return to British dairy producers, and added benefits from more valuable constituency payments.

That’s the view of Mike Houghton of farm consultants Andersons, who reported on the future of dairying for the Trehane Trust Fellowship, launching his report at the annual RABDF conference in London last week (October 18).

While accepting that milk yield is remaining static, at some 14 billion litres, despite declining farm numbers of 13,000, he said it was clear we were producing a commodity rather than a value-added product, and were only 80% self-sufficient with 20% of imports coming mainly from the EU.

“I was astonished to find out that 40% of the industry does not understand the costs of production,” he said. “When our best farmers are able to produce milk for 26-27ppl, anyone working on a higher level than that is losing money at the moment – according to my figures that means another 3000 dairy farmers are running at a loss.”  With Brexit on the horizon, he questioned how much longer these farmers could stay in business.

His figures showed that an increase in milk from forage from 2400 litres/lactation to 3000 litres/lactation would return more than £60 million to dairy farmers’ pockets, and that a reduction in herd replacement rate from 35% to 25% would put an extra 1p/litre on the milk price.

“All costs have to be measured,” he said.  “We need more information about the marginal cow.  Economies of scale matter, but I question whether this always means you reduce the costs of production.  We’ve been using yield mapping in the arable sector for many years – we need a similar system in dairy to remove the marginal cow.

“It’s a fact that it takes a minimum of 33 months to get a new heifer into the dairy herd, and between three and four lactations for her to break even.  Farmers simply cannot respond quickly enough to beat market price volatility.  They must manage supply, or oversupply will determine the number that survive.”

He said that risk management was new to the industry, and that insurance, futures trading and formula contracts all offered options.  Quoting a borrowing deal between Glanbia and Rabobank, he explained that when the milk price exceeded a certain price by 20% the repayments were increased, and when it fell by 20% the borrower was given a repayment holiday.

Referring to the ‘very real’ appetite for British food, he said we needed to maintain our high welfare standards and increase consumer education.  “A small example here is a survey that showed 40% of consumers thought they were lactose intolerant, yet when they were tested, only 5% were…”

Suggesting the introduction of a British food loyalty card, the development of a token system that doubled in value when used to buy fresh fruit and vegetables, and greater effort on myth busting around foods, he ended by saying we were in ‘real danger’ of eating ourselves to death.  “It’s up to us to change the vision.”

Farms Minister George Eustice opened the day by repeating the Government’s commitment to retain single farm payments until 2022 ‘unless something goes wrong in the meantime’, but stressed that in the future the subsidies would come in many different ways – supporting farmers who joined forces collaboratively, or who tackled issues of husbandry and looked after the environment, for example.

“The focus will be on improved efficiency and productivity.  And there’ll be greater support for farmers who pay greater attention to their environment – to improving soil health or water quality. There will be a gradual withdrawal, giving farmers time to plan.”

Accepting that the labour market was ‘tight’ at the moment, he said immigration was being looked at closely and that he understood the farming industry was concerned about the future for seasonal and migrant workers.

The RABDF’s policy director Tim Brigstocke took up the issue of the need for EU labour, saying that assuming one staff member was needed for every 80 cows, there were between 22,000 and 24,000 farm workers in the country.  “This sector has changed dramatically in the past 15 years, with a movement from family to paid labour.”

It’s believed that around a third of the labour comes from the EU, mostly now from Bulgaria and Romania.  “If there are restrictions placed on European workers this will have a huge effect on the future viability of dairy farms,” he said.

The RABDF’s YouGov survey said that ‘willingness to work’ was the reason for employing EU labour, and that 63% of the people surveyed said they used foreign labour because there were insufficient numbers of UK staff.

“The requirement is constant, all year round, not seasonal,” said Tim.  “Good herd managers can earn £60,000 a year plus benefits, but there is a very low UK uptake.  We have a huge image problem in farming, with dairying seen as being repetitive and low paid.”

One of the survey’s most surprising results was that only 4% of people questioned said they would consider working on a dairy farm – and when asked why, quoted the rural location, working with animals and working with machinery as the reasons not to take up a job offer in this sector.

“The Government must recognise the specific needs of the UK dairy farming sector, and the wider Industry needs to encourage new generations of young farmers.  We must promote dairy as a positive progressive industry and influence career advisors,” he added.

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About The Author

John Swire - Deputy editor of Agronomist and Arable Farmer as well as responsibility for the Agronomist and Arable Farmer and Farm Business websites. After 17 years milking cows on the family farm John started writing about agriculture in 1998 and has since written for a variety of publications and has developed a wide circle of contacts within the industry. When not working John is a season ticket holder at Stoke City and also of late has become a fitness freak, listing cycling, swimming and walking as his exercises of choice.