It costs more to produce a litre of milk on some Welsh dairy farms than the price per litre has ever reached, new figures show.
A report published yesterday on the state of the Welsh dairy industry also shows that three-quarters of dairy farms are unprofitable, with the worst-performing 25% making an average loss of 14.2p per litre (ppl).
In 2016-17 the average cost of a litre of milk was nearly 28ppl. When subsidies are taken out, this was more than income earned for the milk.
The reports’ authors write that the findings “suggest there are some fundamental problems with the structure of many farms and possibly the industry”.
Rural Affairs Secretary Lesley Griffiths said: “While the report shows profitable dairy farming is possible, I am particularly concerned that some Welsh dairy farms have costs of production which are higher than the milk price has ever reached.
“That is why I am in the process of tailoring the support we offer these farms to help them re-evaluate the structure of their business and use their benchmarking report to see where improvements can be made.
“It is clear from the report that by becoming more efficient and focusing on producing milk at a lower cost of production, all farms can become more profitable, no matter what the milk price is.”
The report, produced by the Agriculture and Horticulture Development Board (AHDB), is the result of a benchmarking scheme as part of a £3.2m programme of European conditional aid to Welsh dairy farmers.
Three-quarters of dairy farmers took part in the scheme, the highest level of uptake in the UK. Along with aid funding, farmers also received a bespoke report showing the strengths and weaknesses of their business in comparison with other dairy farms.
Data from the benchmarking scheme was used to produce the report. Key findings include:
Some farms have costs of production which are higher than the milk price has ever reached;
The top-performing farms demonstrate that profitable dairy farming is possible, with good returns even in difficult trading conditions;
Farmers who have made a conscious choice about their production system tend to be more profitable;
Farmers should take advantage of the plentiful supply of grass and maximise the milk they produce from grass and forage;
Maintaining high standards of animal health and welfare reduced the financial impact of diseases and can give the industry a competitive advantage.
Ms Griffiths added: “Brexit presents significant challenges to the agriculture industry but also opportunities. The industry and individual farmers must start to plan now for the future.
“The long-term outlook for the dairy sector is good, with global demand forecasted to increase year on year. Our dairy farmers need to be competitive and market-focused to compete with the best in the world. If this happens. then I firmly believe our dairy farmers have a bright future.”
The report shows that the proportion of farms that keep their cows housed all year round has risen to more than 5%. Farms that do so tend to have larger herds than the average.
However, they tend to be less profitable than farms that graze their herds outside for more than nine months of the year. The authors say this is partly explained by the fact that feed costs per cow are around three times as high for cows that are housed all year round compared to those that are grazed for more than nine months.
The report also compared organic with conventional farms and found that the milk price achieved by organic farmers during the period of the survey was almost 60% higher than non-organic farms.
Although milk yields were 14% lower, organic farms were more profitable, with some of the shortfall being made up from higher agri-environmental payments.
By: Chris Kelsey
Source: Wales Online