We live in challenging times and no real recovery in sight for the dairy market until supply and demand align and stocks are used up. Price is the best ‘fertilizer’ and we are now paying for the high returns which encouraged investment and increased production over the past few years around the world and a period of sluggish commodity prices seems set to last for some time.
We must therefore adapt both our minds and practice over the coming weeks and months; given the scale of the challenge, nothing less will see us through. Volatility was the most important topic by some distance during our AHDB ‘Activity Meetings’, where we met and listened to our levy-payers; the scale of challenge to their businesses and what we at AHDB can do to assist.
The danger of volatility is not necessarily the height of the peaks and the depth of the troughs (although the higher and lower they are the more difficult it is), but the length or duration of the periods in question and it is due to the steady fall of milk prices over many months with the prospect of a long period facing us before things improve, that the challenge ahead is so severe.
We at AHDB are here to help by providing advice, information, technical data and market information and comment; all of which enables dairy farmers to make better decisions. We have launched our ‘Volatility Forum’ which will look at all the different ways of mitigating the worst effects of volatility across all sectors, learning from other countries, other volatile markets and experts in this field. As Chairman of this forum I am determined to do what we can in this area, but it will of course be in preparation for the next downturn. It will not provide any solutions for this one.
How sustainable is the UK dairy industry? What makes the difference between profitable operations and less profitable ones? It is of course the combination of milk price, good management practices and cost control. However, the durability or resilience of dairy businesses when facing a long period of low milk price also needs the support of a healthy balance sheet and in many cases the support of the bank. In the case of tenant dairy farmers an understanding and realistic landlord is also important as incomes plummet. Many businesses have invested recently and in future, the timing of large investment will be crucial in volatile markets.
Milk price has reduced significantly quicker than on-farm costs; how long we remain in the trough and how quickly the market recovers will be key factors to determine just how many dairy farmers will survive this period. It is notable in (Figure 1) that the percentage of vulnerable dairy businesses has increased dramatically in the last 12 months and as we head for the spring and even lower prices, it will become more challenging. AHDB analysis shows that there has been a strong correlation between UK milk prices and the fall in UK dairy farmers over previous years (Figure 2), but no real correlation with national production as many cows sold by those exiting the industry are bought and milked by others.
One thing I do know is that we do have some world class dairy farmers in this country, operating different systems to a very high standard.
At AHDB I see our task as championing this, and whilst celebrating our diversity, the right cow, the right system, on the right farm with the right contract; let’s sell that to the customer. However, some systems are easier to operate than others and likely to be more profitable for the majority of dairy farmers and this is an area to look at?
Our markets are under pressure and we need to compete. There is no escape from competition in this new world and it is just as intense in our domestic market as it is for exports. We have many advantages in this country, farm size, farm structure, very favourable climate, and a huge market at home; no other country in Europe has all four. Yet, we import more cheese than we produce in this country and that will not change unless we can compete and attract investment from processors.
I know we can do this and I see great dairy farmers every day. I see my job as Chairman of AHDB Dairy, to assist and encourage dairy farmers to do better and survive the market challenge. The best farmers are always the ones who ask ‘How can I improve – how can I do this better?’ They will find ways to improve, they will continue to do things better and we are there to assist them and others who wish to do the same.
Given that dairy farmers all over the world, including New Zealand, found that their cost of production went up with the higher milk price over the years, everyone now needs to readjust, cut those costs and look again with a fresh pair of eyes on their business? Due to the volatile nature of markets, we need to take a longer period whilst planning our businesses, looking at least three years ahead in order to smooth out the peaks and troughs which gives a more accurate forecast.
One area which seems to be equally important regardless of system is milk from grass and forage and yet we see very low average figures which have fallen over recent years. There is a great deal to do here, starting with the basics. Almost half the grassland in the UK is not corrected for acidity, which means that performance and return from inputs will be low.
Growing grass and forage, utilising it efficiently and turning it into milk is a central plank of dairy farming regardless of system, and failure to do so is hugely costly. We see some farmers growing double the tonnage of maize when compared to others and the difficult question ‘should I be growing maize’ needs to be asked on many farms? AHDB publish grass growth information on our website and you can sign up to our ‘Forage to Knowledge’ monthly newsletter.
When it comes to genetics and breeding, a question often asked is ‘would the loss of an honest broker in this area matter?’ Should we not leave it to the market? Frankly, I think it would matter a great deal, reputational and financial. The robust cow, longevity and welfare are issues that matter to the general public and with genomics AHDB can again make sure that we are covering all the areas not just the immediate commercially advantageous. Genomics opens many doors which dairy farmers will take advantage of, especially disease including bovine TB. Finally, without the ‘honest broker’; who safeguards the dairy farmer?
Our published combined data sources shows the national picture on genetics used and this tells us a great deal about the next generation of cattle being bred. Commercial companies were apprehensive about the introduction of the daughter Fertility Index and would have preferred it not to be introduced back in 2005; ironically they were the first to react to the data by selecting better bulls and removing poorer bulls, bringing about improvement.
We have shown that we can improve fertility without sacrificing production traits, in 2008 we predicted that the UK should start seeing a reduction in national somatic cell counts (SCC), based on forward prediction of genetic merit, genetic indexes are delivering. It really is worth the effort and we are proud to be part of this area where we are up there with world leaders in an area where everyone in the dairy industry benefits.