Confidence key to halting decline in milk supply

Published 30 January 09

Confidence key to halting decline in milk supply

UK milk supply in 07/08 was the lowest in 30 years - and estimations suggest that, despite the higher milk prices received during 2008, this trend is set to continue. A new report issued today (29 January 2009) by DairyCo gives an insight into why UK milk supply is still falling.

This continued decline in milk supply could lead to a knock-on effect with processors reluctant to invest in what they feel is a contracting industry. This would ultimately disadvantage British dairy farmers.

Factors affecting milk supply looks at the numerous issues that have affected both cow numbers and yield, the two factors that govern milk supply, both in the past and their predicted future effect - including the influence of TB, genetics, breeding, fertility, cull cow prices, forage quality and weather.

In particular, the document highlights the many factors which have acted to reduce dairy farmer confidence and an individual farmer's ability and willingness to invest in and develop their business, a key negative influence on milk supply.

Dairy farmer confidence increased in 2008, as a result of rising milk prices. However, DairyCo analysis suggested this increase in confidence was extremely fragile and with falls in farmgate price already announced for 2009, with the likelihood of more to come, this increased confidence will very quickly disappear.

Huw Thomas, head of market intelligence at DairyCo says: "Analysis implies that the majority of dairy farmers planning to stay in the industry for the long term are already operating their farms at full capacity.  To expand their businesses further, and help increase national milk supply, many in this group will need to incur significant amounts of capital expenditure - market signals aren't giving them the confidence to do that."

Other key points highlighted in the report include:

•    A key factor affecting milk supply has been an insufficient number of replacement animals available. However, it is predicted that this will change from 2011 and the extent to which this will increase milk supply will depend on farmer confidence.

•    Dairy farmers and milk buyers will need to work together to improve milk price contracts to better communicate the needs of the milk buyer. Also the entire supply chain needs to further develop relationships that mitigate the effects of price volatility, where possible.  This will allow cashflows to be managed and plans to be made to further improve efficiency on farm.

•    Providing dairy farmers with the confidence they need to expand will have a positive impact on building a sustainable milk supply for the future.  However, if confidence is knocked and margins become tighter it is possible that the larger, more progressive, more business-minded dairy farmers will leave the industry - potentially having a substantial impact on national milk supply. Previous analysis of milk production data for the year 2007/8 by DairyCo showed the production gap is growing between larger and smaller producers, with just a quarter of Britain's dairy farmers producing over one million litres per annum, contributing over half of the national milk supply.

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Date

Highlights of the report include:

•    Since 2005 the number of milking cows in the UK aged two years or more has declined by 4.5% to 1.909 million - a fall of 89,000 head. 
•    Although continuing to increase between 2008 and 2010 the number of available dairy replacements is not expected to be sufficient to completely stem the decline in the number of milking cows.
•    In the 2007/2008 milk year it is estimated that 16,192 dairy cattle were slaughtered as a result of TB testing.  This is equivalent to 114 million litres of lost milk supply in GB as a direct result of TB slaughtering, even if these cows were only lost for one lactation.
•    It is estimated that for every farmer leaving the industry only 80% of the cows remain in milk production, with the rest being culled as a result of being un-saleable or too old.
•    It has been predicted that cows born in 2009 will no longer make significant genetic progress for milk yield.

For further information:
N:    Philippa Stagg
T:    01285 646519
E:    philippa.stagg@dairyco.org.uk

Notes for Editors:

DairyCo's current focus is on improving the profitability of dairy farming by focusing on four specific areas:
•    The provision of a world-class information service
•    Helping dairy farmers increase their profits while meeting regulatory and environmental requirements - through better business management.
•    Helping promote the positive perception of dairy products and dairy farming with the general public
•    The development of DairyCo towards a self-sustaining model.

DairyCo is funded entirely by milk producers, via a statutory levy on all milk sold off-farm, at the rate of 0.06p per litre.  This provides an annual income of around £6.5m.

DairyCo co-funds the industry's nutritional and issues management resource - The Dairy Council - with the processors' trade body Dairy UK.

DairyCo Limited was set up in April 2008 following a fundamental review of agricultural levy boards by Defra. The five existing levy boards (including the Milk Development Council) were replaced by one statutory levy board, the Agriculture and Horticulture Development Board (AHDB).

Reporting in to AHDB are six sector companies - DairyCo covers the milk sector.