EU milk reduction target ‘should be met with a degree of ease’

The targets set for the EU milk production reduction scheme should be met with a degree of ease over the coming months, according to AHDB Dairy senior analyst Patsy Clayton.

Dairy cow numbers are now falling in the UK and this trend is being mirrored across most of the EU’s main dairying regions, she said.

“Milk production in the UK is currently falling at a rate of 4% per fortnight, year-by-year. And, in fact, some weeks ago this figure was up at 8%.

“Given that UK dairy farmers are already cutting back on milk output, it would make perfect sense for them to apply for the voluntary reduction scheme. And the same principle will apply in most other regions of Europe.”

Clayton predicted that the voluntary production reduction target of some 1m tonnes may well be achieved by the second or third tranche of the scheme.

“This accounts for approximately 1% of the total EU milk output. So it’s by no means an insurmountable target to reach,” she commented

Clayton said that the voluntary reduction scheme will act to strengthen farm gate dairy prices in the EU.

Markets are already improving. This is a direct result of the fall-off in milk output recorded over recent months.

But she would not predict how international markets might perform over the coming months.

“The recovery that we are seeing at the moment is sustainable,” she said.

“But, up to a point, we are in unchartered waters. This is the first upward cycle that we have witnessed since the abolition of milk quotas. And Russia’s ban on EU food imports continues to throw a spanner in the works, when it comes to predicting future market trends.”

The current breakeven milk price for dairy farmers in Britain is between 22p and 27p/L (26c and 32c/L).

“These figures are based on cash-related costs only,” said Clayton.

“They take no account of depreciation and investment for the future. The figures rise to between 25p and 33p/L (29.5c and 39c/L) when all costs are taken into account.”

Clayton admitted that it may take some time for farm gate milk prices to reach the breakeven return level required by dairy producers in Britain.

“Meanwhile debt levels continue to increase,” she said.

“We traditionally expect 3% of milk producers in the UK to leave the industry each year. The current figure is slightly above this level, but nothing to cause great concern.  Up to now, those farmers remaining would have absorbed the cows previously milked by their former colleagues.

“However, we are now seeing evidence of enhanced cow culling rates. And this will have a significant impact on milk output levels in the short and medium term.”