Financial pain remains despite market recovery

Published 6 July 17

The proportion of dairy enterprises1 unable to cover cash costs of production almost doubled between 2016 and 2017 to reach almost 40% of those analysed.  The number of herds able to remain profitable throughout the downturn, without the use of other income streams such as Basic Payments, was less than 20%.  

Sustainable Farms 2017

This was the result of dairy farm finances being subject to a double hit of rising costs of production and lower average milk prices in the year ending March 2017.

The average cost of production in the year to March 2017 rose by 1% compared to the previous year. While the costs of the main inputs were relatively stable, reduced concentrate use resulted in lower yields.  On average, yields were down by 2% from 2016, which increased the average cost per litre.

While prices on dairy product markets saw considerable recovery throughout the year, farmgate prices achieved only marginal gains.  As such, the average price3 achieved over the 12 months was 0.5% lower than the previous 12 month average.

Although the immediate cashflow situation on most farms will have improved since March off the back of higher milk prices, the long-term impact of the severe downturn is still being felt by many. A reduction in the investment on farm, an extension of credit from suppliers and increased borrowings will all take time to unravel. Farmers need an extended period of profitability to reverse the impacts from the last couple of years.

 

1Results relate to the costs and revenues of the dairy enterprise only, excluding other income sources such as Basic Payments. Results are derived from a sample of 328 farms, chosen to represent the range of dairy systems in Great Britain.

2Herds are categorised as ‘vulnerable’ if they have a negative margin, ‘short term sustainable’ if they are covering cash costs only, and ‘long term sustainable’ if they generate a positive margin after full economic production costs (includes a return on capital and unpaid labour).

3GB average price excluding retrospective bonuses and aligned contracts