Quota position 2014/15

Published 26 June 14

Now the 2014/15 quota year is well underway, it appears reports of the UK potentially exceeding its 15.3 billion-litre quota allowance may have been greatly exaggerated (to misquote the great Mark Twain). AHDB/DairyCo’s Patty Clayton says it’s not that production is tailing off – reaching quota was always going to be a very unlikely possability.

Thanks to the EU’s soft-landing policy running up to the removal of quota, the UK has a significant milk quota head room – some 15.3 billion litres against a 5 year average production of 13.3 billion litres.

Putting this in context, record milk production was reached in 2003/04 with 14.1 billion litres, produced with 2.18 million cows (400,000 more than we have now) and an average yield of 6,600 litres/cow (currently 7,500 litres).

A quick calculation is going to tell you we’re a long way off reaching 15.3b litres. We would need 15% more milk than our typical production over past five years (equivalent to 5m litres extra per day) to achieve this. That’s 12% more milk than we produced in 2013/14.

It is now clear we started the year well with milk deliveries up to June, around 11% up on the previous year’s output for the same period. Can this be sustained? Bear in mind this significant increase was against an exceptionally low level of production in spring 2013 thanks to poor silage stocks and a slow run up to turnout following cold and wet conditions. Also remember we had a very warm summer which increased production. This means our potential to sustain the 15% increase is slim to non-existent.

The only scenario would be if record average daily deliveries (ie highest achieved between 2003/04 and 2013/14) were achieved for every month in the 2014/15 milk year.  But this would still equate to total production of 14.5 billion litres, leaving a gap of 790 million litres of milk needed to reach quota.  Kite Consulting recently looked at this same issue (view article) and predicted that, at best, milk production would fall short of quota by a similar amount, approximately 725 million litres. And to produce 790 million litres of milk at current yields would require over 100,000 more cows in the national dairy herd.

As far as the outlook for this year is concerned, we are currently in a stable market with regards milk price and it’s also unlikely that feed prices will increase (refer to HGCA analysis of USDA crop estimates). The National herd size seems stable with no increase in the number of heifers entering the herd for 2014, and calving patterns appear consistent with normal patterns. Together, this implies that there is unlikely to be a significant increase in extra milk production in 2014/15.

There will be some farmers who exceed their individual quotas, and milk buyers are expected to be monitoring milk production levels relative to available quota for each of their suppliers through the year, in order to manage their risk of paying superlevy.

But the likelihood of buyers putting additional financial arrangements in place to cover the risk will be small because milk production is unlikely to get anywhere near quota level.

Milk Production

There have been rumours of some farmers becoming concerned that processors may withhold milk cheques in the event that deliveries rise above individual quota holdings.

However, Jim Bebb, director of milk procurement at Meadow Foods, says he would be surprised if any processors were getting nervous so early on. “While production is higher than it has been for a number of years, this doesn’t necessarily need a knee-jerk reaction now. 

“We see no real risk at the moment but we will be monitoring the situation as the year progresses. If things do start to change later in the year, we will probably start a dialogue with any individual producers posing a risk because of overproduction relative to their quota or if they are thinking of ending their supply contract. And for these, we would be talking to them on a case-by-case basis, not imposing measures across the board.”