I was over in England visiting dairy farmers last weekend but there was little or no Christmas cheer with them.

Everywhere I went farmers talked about falling prices and the fact that breakeven milk price is almost 30 p/litre (37 c/l) and that’s not allowing for a farmer’s own wage or family drawings.

Low milk price year

Let’s be clear – in a low milk price year, not many dairy systems make money. However, those that have cost control and good output from increased milk solids can at least ride through the storm.

Those farm businesses that are heavily borrowed, inefficient, and with no reserves may well go out of business unless the bank gives the business some concession. I understand that is what is happening in Northern Ireland – some banks are allowing heavily borrowed farmers park a certain amount of debt in a number two account. However, it still has to be paid down – it doesn’t go away. Similarly, in the recently published Irish Dairy Farmer magazine we discussed the Danish banking situation with a young couple who had just bought a farm in the knowledge that they would take holidays from debt repayment if milk output in poor milk price years was not allowing debt repayment.

Resource assessment

Sometimes we don’t realise the wealth on our own doorstep. English dairy farmers must stand back and look at what they have – some have the best farms I’ve seen in the world.

They have large tracts of land that can grow large quantities of grass yet many will leave cows in all year round in an attempt for control and consistency to push up litres produced per cow. It’s a type of addiction, and in an ideal world it’s a farmers dream to have a fully controlled unit that optimises production from top- producing animals that are bred for higher and higher milk yield.

Unfortunately, we don’t live in an ideal world and the reality is very different. Supermarkets are dominant and take margins for fresh products. Global markets go up and down and prices must track that movement.

The number of British dairy farmers continues to decline from year to year with the country only increasing milk production this year for the first time on the back of a very good grass growing year and the highest milk prices for years.

Industry challenges

In England there are many industry structural challenges that make getting a margin from milk production difficult.

First of all, the farmer is getting little or no signal about what type of milk the processors want. Most are paid on volume contracts with token bonuses for better milk quality, fat, and protein percentages, so the more litres you supply the better.

In an ideal world, where all milk is going to a fresh liquid milk supply that is fine. However, in a world where a lot of milk is going to make commodity dairy products, then a rethink is needed.

Farmer ownership

I travelled through Cumbria last weekend and the story going around from a good number of farmers was about milk processors deciding not to take milk from some suppliers from next April onwards. Some say up to 300 suppliers from one processor have been given notice that their milk will not be needed from April next year.

The milk processor has sourced milk closer to the processing plant and is not prepared to collect milk which is further away from the plant at higher cost. This is the other side of the argument against signing contracts for milk supply.

The farmers tell me that British milk collection and processing is akin to a blood bath at the moment, particularly in cheese processing. Many milk processors purchased expensive milk in the last year and that product is still maturing while cheese prices fall.

Some farmers are under notice to find a new milk purchaser, with many under instruction that if they can find a new home for their milk they can leave at the end of the month as opposed to having to serve their full notice period.

Seemingly, some farmers did have the option to sign long-term secure contracts but chose to ride it out on higher prices. They might rethink that decision now if they had the chance.

Compare the above to Southern Ireland, where the debate has moved to refining the A+B-C payment method. Rewarding milk solids sends the signal to farmers that fat and protein are what the processor want, not volume.

Good farmers in discussion groups want the system refined to better reflect the value of fat and protein on world markets. On milk supply contracts most in Ireland have signed a five year long contract at least. I still maintain five years is too long in Ireland and three would be more balanced.

Milk price cuts started

Similar to Ireland, milk price cuts have and will hit hard in Britain (Ian Potter summarises the most recent cuts in Table 1). There is no doubt that farmers will suffer and not make money and depending on constraints some will go out of business.

The statistics show 400 dairy farmers left the British dairy industry in the last year alone. When the cost structure goes out of control and milk prices drop, there is nowhere to hide.

Case study: Robert Craig – shining light

One of the farmers I talked with in Cumbria, not far from Carlisle, was Robert Craig. Robert and his family are farming at 600-800ft above sea level getting 60in of rain high in the hills.

The farm was milking 40 cows in 1984 when quotas came in, producing 200,000 litres. The farm developed to milking 100 cows in 1996 by buying quota at 60p/litre etc. Herd size grew to 240 cows by 2006/7, with Robert and his dad working hard.

When the opportunity came to buy 130 acres adjoining the home farm, Robert succeeded in purchasing the parcel, allowing him increase cow numbers further from 240 to 390, and also allowing him take on full-time labour.

The farm has been developed into a grazing farm and Robert is focusing on fertility and milk solids despite no signal on milk price from his processor.

Last weekend Robert had 100 cows still milking getting grass silage and 4 kg of meal. His supply contract with Arla Direct is delivering 37p/litre at the moment.

From the 330 cows that were served, 29 were scanned not in calf after 12 weeks of breeding.