Crying Over Spilt Milk - A Dismal Outlook For The UK Dairy Industry
The dairy industry has been in the spotlight for a
while now - and for good reason. Rising input costs, high
prices and policy changes are squeezing farmers out of the
UK milk production for the 2007/08 year looks set to be over
700m litres (adjusted for butterfat) below quota. This is a
record shortfall. It means production was some 5% below quota
or, put another way, short by 18 days' worth of
The target for UK milk producers is disappearing even
further out of sight. In order to engineer a soft landing when
milk quotas are abolished in 2015, the EU is giving out extra
quota. The idea behind this is that once enough quota is
circulating and every member state has more than it needs,
quotas will cease to have any value or meaning.
As part of this, EU farm ministers agreed to raise milk
quotas by 2% from 1 April 2008. This will increase each
producer's quota by 2%, in addition to the 0.5% due this
year from the last Cap reform. Taking all of this into account,
the UK's quota will be approximately 14.7bn litres. But, if
this year's production is anything to go by, this will not
really affect the UK, at least in the short term.
It is unlikely that this spring will see a flush of milk.
The March figures put UK butterfat-adjusted production 80m
litres under target. With a late spring, high feed costs,
little forage (mostly of indifferent quality) and low stock
levels, the chances of a delayed surge are small. This, in
turn, is helping to keep milk prices firm.
Due to the shortage of raw materials, milk buyers have to
maintain or increase prices to stop producers defecting to
other processors. This is despite markets for most dairy
commodities weakening over the past few months. However, the
costs of production have increased tremendously, so current
prices are probably the bare minimum required to stop a further
wave of producer exits. Unfortunately, the bad news doesn't
stop there. The next hurdle on the horizon is the forthcoming
changes to the Nitrate Vulnerable...
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