From Weighing Up the Economics of Dairy Farms Extract
Pressure from supermarkets to squeeze the price farmers receive for the milk they produce has led to a highly inequitable distribution of income within the dairy supply chain and placed enormous pressure on farmers to reduce production costs in order to stay afloat. Most of the value of the UK’s dairy trade deficit is made up of cheese. Some of this is of a type that is inaccessible to british producers (e.g. high value continental cheeses such as brie) and some is generic cheese, particularly cheddar, supplied by lower-cost producers, mainly in countries with pasture-based production systems. In Australia and new zealand, dairy farmers are able to make healthy profits from hardy low-yielding cows because the cost of keeping a cow is low in a pasture-based system. As this model works on low costs, the margin made on each litre of milk can be quite high, even at relatively low milk prices. In the US, large scale producers are on a treadmill of seeking ever greater yields and economies of scale and some farmers now consider that the trade-off between increased yield and cow health and survival is no longer profitable. US mega-dairies can make large profits when the milk price is favourable, but are vulnerable to equally large losses when the milk price falls. The economic analysis of a hypothetical UK mega-dairy presented in this report reveals that an 8000 cow herd would be just as vulnerable to fluctuations in the market and difficult supermarket negotiations, as every other dairy farm in the UK. The economies of scale that could be achieved with an 8000 cow herd would not be sufficient for a mega-dairy to survive at world market prices so it would directly compete with traditional farms for access to premium markets for liquid milk and branded dairy products. If the mega-dairy was successful in getting into these markets, it could displace up to 100 existing family farms from the market. Data from real farms in the UK and US demonstrate that small farms can be more efficient and resilient than larger ones, especially where they make use of natural grazing resources to reduce costs. Whilst large herds may be able to achieve a greater herd margin, smaller farms often achieve a higher margin for each cow and each litre of milk produced. Breeding for high production has created animals that require very high levels of energy to remain productive. feed is the biggest cost on most farms, accounting for up to 30 per cent of production costs, and is the biggest contributor to rising costs of production. Grazed grass remains the cheapest feed available for most UK dairy herds. There is potential for farmers to achieve higher returns by keeping robust cows on pasture. When we take into account the longevity of robust cows, their ability to get pregnant, calve more regularly and produce calves of value for beef, any reduction in milk yields can be more than offset.