ANALYSIS - Hitting recently announced UK milk supply targets of 4.5 billion more litres by 2020 will require cooperation and efficiency across the board, dairy experts concluded at the Livestock event at the NEC in Birmingham this week.
This is vital if businesses are going to cope with high feed costs and increasing pressure from changing Common Agricultural Policy payments, which business consultants forecast to drop by 0.3 pence per litre by spring next year.
The target of 4-5 billion more litres over the next seven years has been set out in the National Farmers Union dairy strategy Compete to Grow - a vision of how the UK dairy industry can meet expanding opportunity in overseas exports and domestic growth.
The document references FAO food production targets and the government’s Foresight report which outlines future global requirements to feed eight billion people by 2030 and a further billion people by 2050.
Fifty recommendations for the industry are listed in the report, aimed at individual areas of the supply chain and the sector as a whole.
Robert Newbery, NFU Chief Dairy Adviser said: “What we have sought to do in ‘Compete to grow’ is set out opportunities for growth in the market place, set out how much more milk the market will consume if we are to meet government targets in reducing the trade deficit and put out some key objectives.”
NFU intentions are to maximise growth opportunities that face UK farmers over the next five to ten years because, as NFU Diary Board Chairman Mansel Raymond articulated, if UK producers don’t take advantage, then other nations will.
After 2015, a new era will begin for the dairy industry, which Mr Raymond said will require investment, trust and confidence.
“We are in a different era, post 2015. Quotas are going to be removed – that is clear. World demand is there and UK demand is there, we have to compete to be number one,” outlined Mr Raymond, highlighting the temperate UK climate as a great asset.
NFU Dairy Board Chairman, Mansel Raymond, highlighted the link between producer confidence, investment and expansion at the Livestock event at the NEC in Birmingham this week.
Photo Courtesy of Ceri Saunders
“Whether the UK has been below quota, that is immaterial, parts of Europe have been constrained by quota. All projections see milk production lifting with the northern states particularly progressing – the UK needs to be on this list.”
Most importantly, Mr Raymond said processors need to give the industry confidence to allow investment so businesses can expand. This, he added, is necessary to reverse the steady ten year decline seen in dairying, underpinned by a 3 pence deficit on European prices.
“All projections see milk production lifting with the northern states particularly progressing – the UK needs to be on this list,” he said.
“If feed costs can come down then we may be in a different place than we were two months ago. We have been 2-3 pence per litre below our European colleagues over the last decade - that 2-3 pence per litre is money this industry has not invested.”
But debating margins on milk produced on-farm is not the solution. Progress will come from farmers and milk buyers looking at how to develop and build on what is already there, according to Andersons, one of the leading UK farm business consultants.
Head of business research at Andersons, Richard King commented: “There has been a lot of arguing over the margin; instead, people need to start looking at addressing inefficiencies and looking at where growth can happen.”
Mr King revealed Andersons predictions of further milk price increases through 2013 on the back of global supply fears. He added that Andersons see production costs falling at the time of quota removal as they expect feed and fertiliser prices to ‘back off’.
Feed is a vital area for Tony Evans, Head of Dairy Consultancy at Andersons, who advocated grassland dairying as the lower risk option in the coming years.
He foregrounded feed efficiency as a watchword for the future, particularly on concentrate based systems that are open to volatile feed markets.
* Mr King revealed Andersons predictions of further milk price increases through 2013 on the back of global supply fears.
Mr Evans said that concentrate based systems are – to some degree - a bit of a lottery, stating that forage based systems are underwritten with more security.
“Currently, we are seeing feed efficiency rates that were profitable back in 2008 change. In order to achieve the same rates at today’s feed costs we would need farmgate prices of 38 pence per litre,” said Mr Evans.
“Back in 2008, feeding 1.7 kilos of concentrates for a kilo of milk was realistic but presently a more affordable input of 1.2 kilos is what is affordable.”
“We have not done any specific breed to breed costings over the next few years. All I would say is that some breeds are more suited to forage based systems than some of the other more extreme native breeds.”
Making native breeds ‘stack-up’ will probably be difficult unless accompanied with special premium buyers are offering, he added.
For this reason, large, high input herds were something not in keeping with current thoughts on herd efficiency.
“People frequently talk about sustainability,” said Mr Evans. “With the NRM replacement rate around or above 30 per cent, you go to a low input system and the replacement rate can drop below 20 per cent.”
On top of favouring a forage based system in the future, Mr Evans said that to meet the level production profiles required by processors and dairies, farmers could look at scrutinising what calving patterns could suit their farm.
“There are quite a few farmers in Cheshire selling milk to Wiseman who have two herds – one calving in spring and one in autumn,” said Mr Evans. “This is where there profit is. They respect their contract but are changing the way they meet it.”
Such arrangements, he added, were still reasonably successful at producing a level profile across the year.
“The highest cost unit is the all year round farm; the second highest cost is the autumn calver with the third highest cost being the spring calving dairy.”
On the whole, Mr Evans was bullish about being a dairy farmer in present times, drawing attention to interest rates as cause for confidence. He conceded however that borrowing to expand modern farms is a long term investment of around 25 years in many cases and is best done with younger generations in mind.