The change in both base levels and increments for fat and protein give a clear signal to Dale Farm suppliers to focus on nutrition, health and genetics of cows over the next three years to improve milk component percentages.
Those with high solids at present will be better off going forward, even if they only hold at current levels.
But others with reasonably good solids will have lower incomes by 2024 if nothing changes in their business.
Our analysis suggests that the cut-off point is in and around 4.21% butterfat and 3.41% protein. In other words, assuming base price remains the same, a 650,000 litre producer supplying milk at 4.21% butterfat and 3.41% protein in 2020/21 will have a similar income in 2024/25 if those percentages remain unchanged.
If milk quality is below 4.21% fat and 3.41% protein, a supplier will be worse off in 2024/25 if nothing changes.
Those with fat and protein above this level will be better off under the new pricing arrangement, even if their milk quality stays the same.
It is a similar scenario in the Glanbia Ireland model, but Lakeland is different, and any increase in income is solely reliant on increasing fat and protein percentages irrespective of the milk quality currently being produced.
To illustrate the point further we, have created four different scenarios as shown in Table 1.
All the scenarios assume that a farmer supplies 650,000l each year and that base prices remain unchanged at 33p/l.
In the first scenario, the farmer produced milk at 4.15% butterfat and 3.33% protein during 2021, which is broadly in line with Dale Farm’s average supplier.
By the end of the third transition year (April 2024 to March 2025), the example assumes the farmer’s milk solids are unchanged.
Under the new payment system, the farmer will be £962 worse off in year three due to the rise in base level for solids.
In the Scenario 2, the farmer also averaged 4.15% butterfat and 3.33% protein in 2021, but in year three, solids increase by 0.1% to 4.25% butterfat and 3.43% protein. Milk sales increase by £4,173.
Scenario 3 – High solids and no change
In the third scenario, the farmer produces high solids at 4.65% butterfat and 3.83% protein in 2021.
By the end of year three, it is assumed milk solids are unchanged. However, they are still significantly better off by then, with an additional £5,863 in milk sales due to the higher monetary value placed on components.
In the final scenario, the farmer is producing high solids at 4.65% butterfat and 3.83% protein in 2021. In year three, both components have increased by 0.05%, leaving the farmer £8,431 better off.
The same four scenarios have also been applied to the model announced by Glanbia Ireland earlier this year (Table 2) and the Lakeland Dairies model which applies from 1 January 2022 (Table 3).
Again a base price of 33p/l is used.
In the Lakeland calculations, it is assumed that the starting point in 2021 is the same as the reference year.
While the data is only indicative, it does highlight that the incentive offered by Glanbia to produce higher solids milk is greater than that from Dale Farm.
Both are significantly different from Lakeland, which instead has primarily opted for a model that does not penalise low solids producers.
Any Lakeland producer who can significantly increase solids can receive a substantial benefit, but there is little in it for those already with high solids milk.