Saturday, October 17, 2015

How much money are dairy farmers losing?

Dairy farmers in the UK are to receive an average one off payment of about £2,000 to ease cash flow problems. A dairy farmer in England will receive an average payment of £1,820, but the figures are higher for the devolved regions apart from Wales with farmers in Scotland being paid an average £2,620. However, NFU dairy board member Rob Harrison said that farmers were, on average, £10,000 worse off in July this year than a year ago, so the average payment would not make much difference. However, there are limits to how far taxpayers can be asked to bail out businesses in trouble, even when issues of food security are involved.

Figures of losses at dairy farms often appear dramatic and one might wonder how they continue in business at all. However, they do not take account of non-dairy income and they typically are arrived after deducting a wage for every family member involved in the enterprise.

Figures from The Dairy Group cover about 150 English and Welsh herds with an average 230 cows. Milk prices ranged widely from 19p to 32p a litre with an average price of 24.7p a litre. This range is quite odd when one recalls that one is dealing with an essentially undifferentiated product, but it is a question of who the farmer's processor is. Farmers in more geographically peripheral areas often don't have a choice.

Feed costs have fallen by about 0.8p a litre, and are likely to fall further. Many milk producers will make a loss of 3p a litre this year, but this is before one takes account of non-milk income such as that from calf and cull cow sales. Non-milk income brings in about 3.6p a litre, producing a profit of about 0.8p a litre. There is also a labour charge of £20,000 per family member.

The figures do not take into account rent, tax and capital expenditure. Nor, apparently, do they include subsidies which for many farmers make the difference between a loss and a profit.

There is no doubt that dairy farmers are having a hard time. Just as in steel, a global surplus of product is driving down prices. However, there are considerable variations from farm to farm and calculating the 'profit' figure is by no means easy. Accounts are, after all, a social construction of reality.

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