While many dairy farmers are enjoying a 10% price rise since the start of the year, many others are not so well off.

Scottish dairy farmers are getting between 23p/l and 33p/l for their milk depending on their contract.

In recent years the farmers who received the most for their milk have been on aligned contracts with retails. These contracts have set the price according to the cost of production which has rarely dipped below 28p. Meanwhile, non-aligned producers supplying creameries in England often get paid poorer prices with an additional haulage charge of up 1-2.5p/l.

Speaking to the Farmers Journal, NFU Scotland’s milk committee chair Gary Mitchell wants more to be done to improve contract transparency as many lower priced producers are still paid below the cost of production.

The former Northern Ireland farmer said: “One of the challenges in the dairy sector at the moment is the wide range of milk prices being paid. Within Scotland we have a 10p gap in milk price. Many of these farmers are getting paid the equivalent of £3/hr according to reports.

“Additional haulage costs for farmers further from processors and seasonality price changes mean that many farmers are still struggling to make money despite a higher average price across farms. There is also the difference between aligned and non-aligned producers.”

Contract clarity

“Milk contracts is one of the items which always come to the fore at the dairy committee. We are nearly one year on from DEFRA’s consultation milk contracts and it looks like it has been kicked down the road. We are hoping that in the coming months there will be a paper on the situation coming from the Government.

“We don’t want price fixing, we just want a transparent formula for setting the price. Many contracts can change within a month with little the farmer can do.”

Exclusivity preventing diversity

Ninety-four per cent of the milk produced in Scotland goes to just five processors which reduces resilience in the sector and hampers export opportunities.

Most dairy farmers in Scotland are contracted to supply 100% of their milk to their processor. According to Mitchell, this creates a barrier to healthy competition in the market. New processors struggle to come into the market as farmers are unwilling to dedicate all their milk to a riskier new enterprise. However, he believes if farmers were able to maintain their obligation to their main processor and allocate a proportion to a new processor it would move the sector forward.

Farmers could put on a few extra cows or increase production for milk which would support a new processor in the market and help diversity. Gary is keen to point out that he is not looking to ban dedicated contracts but wants to see a bigger ranger of processors to supply.

Feed price challenge

The price of feed has risen by 20% for many dairy farms with silage costs also going up due to an increased fertiliser bill.

“My fertiliser bill is up £100/t on the year and between the start of June and the middle of July we only had around 12mm of rain in Wigtownshire,” he explained.

“We basically missed a whole cut of silage and now I am sitting with two empty pits and not exactly sure how I’ll fill them. The days are getting shorter and it is getting colder.”

Record cull trade

Last week, Gary sold four Holstein cows which averaged 449kg at £3.30/kg after three lactations and 34,000l of milk. He said: “I have never seen a trade so high, nearly £1,500 for a dairy cow.” Calves are also a good trade with Aberdeen Angus bull calves two weeks old getting £300/head and heifers £220-£240/head.

£50k not tempting managers

While availability of staff on dairy farms is tight, there is a particular shortage of farm managers, according to the NFUS dairy chair. Gary stated that general farm staff are in short supply and wages needed to be £27,000 to £42,000 a year to get reliable workers. However, he explained there is a worse shortage of senior staff for positions like herd manager. These positions command a salary of over £50,000 plus a house and benefits but despite the packages offered he believes finding people willing to take the responsibility of the more senior roles is becoming difficult.

Slurry storage changes

He explained that legislative changes to slurry stores could be costly to dairy farmers. Currently slurry stores built prior to 1991 are exempt from the SSFO (Silage, Slurry and Agricultural Fuel Oil) legislation but the Scottish Government is looking to bring older units into line. This would mean additional costs for older tanks which may need liners fitted or could even be condemned.

Gary warns that while promises of funding for improvements or replacements have been made by Government, no clarity has appeared. He fears that if landed with serious costs many dairy farmers will choose to leave the industry.

Production predicted to rise

Despite falling dairy cow numbers, the forecast for milk production is predicted to rise but by a small amount. The 0.3% growth to 12.58bn litres forecast over the next 12 months is due to increased yields per cow, according to AHDB. Increased cull cow prices have tempted many farmers to bring younger and more productive cows into their herd while selling older animals. Prices for cull cows are up 30p/kg, making culling tempting and the use of sexed semen is making it easier for herds to breed their own replacements.

Rebalancing milk sales

Milk demand is predicted to remain above pre-Covid levels according to AHDB as food service sales rise with the easing of restrictions. Internationally there appear to be growing milk supplies, particularly in New Zealand which could tip the balance and weaken prices towards the end of the year.

However, the longer-term global predictions show rise per capita consumption across the board. In developed regions, such as Europe and North America, fresh dairy consumption has been declining, but consumption of cheese is expected to grow. In developing countries, rising populations, and increasing income levels will support higher per-capita consumption levels..

Covid consumer changes

Working from home during the pandemic saw millions of shoppers opting to cook from scratch and treat themselves. As a result, fresh cream sales jumped 13% and butter was up 9%. Health was less of a priority for many during the pandemic and consumers wanted to treat themselves.

Cheese was up %, with strong growth in mozzarella, up 31%, Paneer up 3% and Cheshire saw the biggest volume growth at 25% up.

The UK’s favourite cheese cheddar also rose by 4%. Milk saw strong volume growth, rising 6%, accounting for the bulk of dairy retail gains. The uplift predominantly came from increased volume per buyer. Milk consumption has risen due to more tea and coffee being drank at home. However, market share fell for fat-free yogurts and products likes Quark with sales dropping over 30%.

Scottish Dairy Sector

  • 176,334 dairy cows in 848 herds.
  • 1.51 billion litres produced annually with an average yield of 8,563 litres.
  • 41% of milk used for liquid market with 38% used for cheese.
  • 18% of the milk is send to England and Wales for processing.
  • Three-quarters of the dairy cows are in the southwest of Scotland.
  • The average direct support payment to dairy farms in Scotland is £34,412.
  • Scottish dairy farms have an average net worth of £2m.