Importance of calculating realistic costs of running dairy holding
A standard practice for determining dairy production costs on-farm is vital for the future of the sector, according to a Westcountry consultancy.
The Dairy Group, based at Taunton, believes the issue needs to be addressed as soon as possible. Both the Royal Association of British Dairy Farmers and the sector's industry organisation DairyCo have been instrumental in pushing this forward – and it needs to be fixed.
The Dairy Group's Nick Holt-Martyn said: "Production cost measurements that discount Single Farm Payments or environmental income, or fail to account for all the resources used in milk production, are underestimating the real cost of producing milk.
"With so many contracts becoming linked to cost-of-production, an agreed standard is urgently required. Modifications thereafter for a particular milk-price agreement are possible, but this must not be confused with the actual cost of production."
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Having chosen cost of production as the main price-setting marker, retailers and processors are now learning the effects of such a difficult summer, with production costs soaring as feed costs work through into farm accounts, he said.
Domestically, at least, the prospects in 2013 for further cost-of-production driven price rises look inevitable.
After all the upheavals of the past year, there was now greater stability, with the market finishing the year exactly where it started.
The autumn and first part of the winter saw the supply side slump in the UK and Ireland, firming the short-term domestic market and helping the manufacturing sector to provide higher farm-gate payments. Mr Holt-Martyn added: "The prognosis for 2013 is for production costs to dominate the debate, even where it is not formally part of the price-setting process. The knowledge that it has reached around 33ppl this winter and that winter milk supply is running 6% below 2012 will focus minds on what milk price is needed to sustain production. Production costs tend to reflect milk price over the longer term, such that to remain in business a profit has to be made, so if your milk price is consistently in the bottom quartile your production costs will tend to reflect the lower milk price and leave a small and inadequate profit."
The Rural Payments Agency has received details from milk purchasers of the amount of milk which was produced in December. The UK wholesale milk deliveries totalled 1,035.9 million litres in December, bringing the cumulative total for the year to 9,821.8 million litres.