Investment the big issue

INVESTMENT was the big issue now facing the dairy industry whether it be for NVZ compliance or expansion.

And it could prove to be last straw that broke the camel’s back said Andersons’ Francis Mordaunt.

Much currently hinged on a further milk price increase and producers’ confidence that future milk returns would justify capital expenditure now.

“This time last year we thought the return to ‘real’ profitability in the dairy farming sector had arrived just in time to halt the slide in production and encourage reinvestment,” he said.

But costs, particularly feed, fuel and fertiliser were now running away with margins.

“Unfortunately costs of production look like being 3ppl higher than originally expected, mostly coming from higher feed, fertiliser and fuel input prices as well as an element of much needed machinery replacement”

Taking the example of Andersons hypothetical though typical 150 cow midlands farm averaging 7,500 litres per cow, the costs of NVZ compliance could be around £80,000 and Andersons admitted that many milk producers had yet to appreciate the impact which NVZ compliance could have on their businesses.

With that figure budgeted into projected 2009/10 costings total costs of production look set to increase from a level of 23.1ppl in 2007/08 to 28.7ppl. That could see a negative margin of 0.4ppl leaving a business surplus with sfp and ELS built-in, of 1.9ppl.

“We need a higher milk price even with the possibility of some input costs falling back,” said Mr Mordaunt. “And we are not yet convinced we will see those cost decreases.”

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