Pressure from supermarkets to squeeze the price
farmers receive for the milk they produce has led to a highly
inequitable distribution of income within the dairy supply
chain and placed enormous pressure on farmers to reduce
production costs in order to stay afloat.
Most of the value of the UK’s dairy trade deficit is made
up of cheese. Some of this is of a type that is inaccessible to
british producers (e.g. high value continental cheeses such
as brie) and some is generic cheese, particularly cheddar,
supplied by lower-cost producers, mainly in countries with
pasture-based production systems.
In Australia and new zealand, dairy farmers are able to
make healthy profits from hardy low-yielding cows because
the cost of keeping a cow is low in a pasture-based system.
As this model works on low costs, the margin made on each
litre of milk can be quite high, even at relatively low milk prices.
In the US, large scale producers are on a treadmill of
seeking ever greater yields and economies of scale and
some farmers now consider that the trade-off between
increased yield and cow health and survival is no longer
profitable.
US mega-dairies can make large profits when the milk
price is favourable, but are vulnerable to equally large losses
when the milk price falls.
The economic analysis of a hypothetical UK mega-dairy
presented in this report reveals that an 8000 cow herd would
be just as vulnerable to fluctuations in the market and difficult
supermarket negotiations, as every other dairy farm in the UK.
The economies of scale that could be achieved with an
8000 cow herd would not be sufficient for a mega-dairy to
survive at world market prices so it would directly compete
with traditional farms for access to premium markets for
liquid milk and branded dairy products. If the mega-dairy
was successful in getting into these markets, it could
displace up to 100 existing family farms from the market.
Data from real farms in the UK and US demonstrate that
small farms can be more efficient and resilient than larger
ones, especially where they make use of natural grazing
resources to reduce costs.
Whilst large herds may be able to achieve a greater herd
margin, smaller farms often achieve a higher margin for each
cow and each litre of milk produced.
Breeding for high production has created animals that
require very high levels of energy to remain productive. feed
is the biggest cost on most farms, accounting for up to 30
per cent of production costs, and is the biggest contributor
to rising costs of production.
Grazed grass remains the cheapest feed available for
most UK dairy herds.
There is potential for farmers to achieve higher returns by
keeping robust cows on pasture. When we take into account
the longevity of robust cows, their ability to get pregnant,
calve more regularly and produce calves of value for beef,
any reduction in milk yields can be more than offset.