It’s been a bumpy ride for farmers across all sectors but for our members who produce milk for a living the chances are that, at this moment in time, they wake up every day knowing they could be worse off by bedtime.
The dairy industry here in Wales has had a tough couple of years; looking for a glimmer of optimism isn’t that easy when milk payouts are still so low.
The milk price will eventually rebound as global demand picks up and supply declines, as it is beginning to do right now, albeit with the lower priced milk.
That knowledge is some comfort but it is likely that producers will have to get used to the roller coaster effect of supply and demand in an unregulated market.
As this will be a new experience for dairy farmers, we want to help our dairy farmer customers to be in a better position to deal with these swings, as and when they happen.
To this end, we took the initiative of commissioning a study with the Scottish Rural University Colleges (S.R.U.C.), analysing the businesses of two of our dairy farmer customers. The S.R.U.C. looked at everything, from cow housing, labour, finance and grass utilisation to fertility and milk contracts. Nothing was spared.
We then invited other dairy farmers to take part in workshops, looking at both cases and coming up with their thoughts before hearing the recommendations made by the reports’ authors.
We carefully chose the two farms because they needed to reflect the typical dairy farm here in Wales; we wanted every farmer at those workshops to benefit from what they learnt at the workshops, even if it was just a simple S.W.O.T. analysis with their own farms to enable them to see how they could strengthen their own businesses for the future.
For both farms, it was no surprise that the low milk price was seen as a threat. One farmer was paid 16.54ppl in May plus a 1.35ppl volume bonus but his cost of production was 28ppl. You only need basic maths to work out that this situation is just not sustainable. The second farm received 19.12ppl for its June milk with a cost of production of 23.4ppl. Both farms had different approaches to their business but the cost of finance was one of the big differentials between the two farms.
We appreciate every system is different but what is clear from this study is that farmers need to focus on costs to ride out future market volatility, deciding what is important on the farm and what is simply something “nice to have”.
The challenge is to think long-term about whether a business can be profitable against a backdrop of volatile milk prices and reduced support payments going forward.
What did emerge from this study was that the strongest businesses will be those who give attention to cost control, and who regularly look at their business model.
The key take home messages here are to know your own business, its costs and its limitations, match your milk buyer with your farm’s strengths, benchmark against others, have a strategy and be prepared to change.
– Keith Gosney, general manager, CCF Ltd.