Milk price still important component of profit

WITH the UK way down the EU milk price league table, producer milk price is not where it should be.

And The Dairy Group’s Nick Holt-Martyn says changes in milk price can still have a dramatic effect on profitability without affecting production costs.

Commenting on DairyCo’s recent Milkbench 2012 report which maintained the key determinant of profit was total cost of production, Mr Holt-Martyn acknowledged profit from milk production was possible across the milk price spectrum.

But there was still a trend towards higher profitability with rising milk price - albeit perhaps not as clear as many farmers would like.

“The retailer milk price premium is worth up to 3.8ppl, so the loss of a retailer contract would have a large effect on profitability without much reduction in the production costs.

“Some retailer contracts do incur direct additional costs, so whilst these direct costs would be saved (with the loss of the contract) the remaining production costs would still be incurred,” said Mr Holt-Martyn.

“Milk price needs to reflect market returns to enable producers to be competitive. With the UK consistently below the EU average where is the export led expansion of competitively priced UK milk into the single market ?  UK processors fail to deliver a share of market returns comparable with other EU countries, which is why milk price will always be a key issue affecting profitability even though, individually, milk producers have little power to affect a change,” he said.

And another consultant has warned producers selling to smaller processors need to keep a close eye on their milk buyers’ businesses.

With processors increasingly squeezed from both ends, The Farm Consultancy Group’s Lincoln based consultant Charles Holt says producers need to consider, “are they safe to sell to ?”

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