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UK milk producers saw steady margins but net margins are negative

Staff Writer |
The world milk price experienced a sharp decline in 2014, continuing into 2016. This, unsurprisingly, has significantly affected profitability of dairy farms in many countries around the world, despite lower feed prices.

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Depending on the region, the International Farm Comparison Network (IFCN) estimates that profits fell by between 1ppl in Central and Eastern Europe and 8ppl in North America.

However, in some countries, milk prices have remained above world prices during the downturn. China’s milk price is helped by government support, which aims to increase domestic production and offset China’s high feed prices.

India’s milk prices are steadily rising because demand is outpacing production, tariffs help protect against imports and the government helps support the sector.

In Russia, a deficit of milk is currently bolstering prices to some extent. U.S. milk prices tend to track global markets but its strengthening economy and strong domestic demand have provided some shelter from the price slump.

Closer to home, Western European average costs of production were 37ppl and 31ppl in 2014 and estimated for 2015, respectively.

The UK, at a typical 32ppl ECM in 2014 and estimated to be about 29ppl ECM in 2015, still remains reasonably competitive within the community. Recent sterling devaluations will have reduced this competitive advantage. However, outside of the EU, American and Oceania costs of milk production are still much lower.

Using the latest data available, how does the UK compare with previous years but also some selected European competitors?

Although the UK hasn’t experienced the highest margins after cash costs compared to some of the other EU countries, it does appear to have had a steadier margin. Only the Denmark typical farm in this comparison had negative net margins, after cash costs, at any point.

We see a different picture when net margins are calculated after non-cash fixed costs are included.

The obvious trend is that, during most of the last five years, net margins after all costs are considered, were negative.

In comparison to the other five countries, the UK typical farm has fared best with three out of the five years returning a positive margin, albeit small.

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