MEMORANDUM SUBMITTED BY THE MINISTRY OF
AGRICULTURE, FISHERIES AND FOOD AND THE WELSH OFFICE AGRICULTURE
DEPARTMENT (Q 24)
CHAPTER 1
STRUCTURE OF THE UK DAIRY INDUSTRY
MILK PRODUCTION
1.1 In June 1997 there were around 2.5 million
dairy cows and heifers in milk on over 36,000 holdings in the
UK. This represents a decline of about 0.85 million cows (26 per
cent) since 1984 when milk quotas were introduced. The decline
has been fairly constant over the period (see Chart 1). Over the
period 1984 to 1997 the average herd size in the UK increased
from 58 to 68 and the proportion of dairy cows in herds of 100
or more rose from 40.6 per cent to 45.4 per cent.
1.2 Between 1984 and 1998 the average milk
yield per cow rose by over 22 per cent to 5,793 litres (seeChart
2). Over the same period annual UK milk production fell by 10.5
per cent to 14,200 million litres.
1.3 There is a marked regional distribution
of the dairy herd in the UK (see Chart 3), with most of the dairy
cows located in the west of the country in the areas best suited
to grass growth. Chart 4 shows that whilst the majority of the
UK dairy herd is in England, dairy farming is relatively more
important in Wales and Northern Ireland than it is in England
and Scotland.
ECONOMICS OF
MILK PRODUCTION
1.4 A summary of the results from a 1996-97
survey of dairy herds with at least 10 cows is presented in Table
1 below showing the average cost structure and margins per cow.
1996-97 was a year of relatively high profitability for milk production.
1.5 Chart 5 shows net margin by herd size
group. There was a marked trend towards higher net margin per
cow as herd size increased. This was due, to a considerable degree,
to increases in output. Herds in the largest herd size group achieved
an average milk yield per cow which was 1,075 litres, or 21 per
cent, greater than herds in the smallest size group and there
was also a trend of increasing milk price with herd size.
1.6 Since 1996-97 the profitability of agriculture
(including milk production) has declined sharply. Provisional
estimates for 1998-99 suggest average gross margins per dairy
cow have declined by about £200 to £730. In real terms
net margins are thought to have fallen by about two-thirds over
this period. The main cause of this decline has been a steep fall
in the ex-farm price of milk. By 1998-99 the average milk price
had fallen by almost 25 per cent compared to its level in 1996-97.
Table 1
PRODUCTION COSTS AND MARGINS IN ENGLAND AND
WALES 1996-97
| Average |
| Number of herds in sample | 377
|
| Herd size | 77.9 |
| Milk Yield (litres per cow) | 5,909
|
| Milk value (pence per litre) | 24.99
|
| Output | £/cow
|
| Milk | 1,478 |
| Calves | 90 |
| Miscellaneous | 7 |
| Less herd depreciation | 96
|
| Total output | 1,479
|
| Variable costs | |
| Concentrates | 251 |
| Other feed | 15 |
| Forage variable costs | 100
|
| Milk quota leasing | 61 |
| Miscellaneous variable costs | 120
|
| Total variable costs | 547
|
| Gross Margin | 932
|
| Fixed Costs | |
| Labour | 248 |
| Machinery and Equipment | 94
|
| Buildings | 23 |
| Rent | 88 |
| Overheads | 121 |
| Total fixed costs | 574
|
| Environmental Payments | 1 |
| Net Margin | 359
|
| Net Margin (£ per herd) | 27,983
|
Source: Economics of Milk Production England and Wales
1996-97 (University of Manchester)
DAIRY FARM
INCOME
1.7 According to the Farm Business Survey, which is based
on a sample of full-time farm businesses, the average net farm
income of dairy farmers in England was around £19,800 in
1997-98 (see Chart 6). This compares with £19,500 for general
cropping farms; £14,400 for cereal farms and £880 for
lowland cattle and sheep farms. The average income for all types
of farm in the sample in England was £13,300. In Wales, the
average net farm income of diary farms was slightly higher than
that in England (£22,800), with an average income for all
farm types of approximately £11,400. The average income of
dairy farmers in Scotland was slightly lower in this year (£14,000),
and in Northern Ireland this was considerably lower (£8,100).
1.8 There is, however, wide variation around the average.
In 1997-98 nearly 40 per cent of dairy farms in England had a
net farm income in excess of £20,000, while 40 per cent had
below £10,000 (of which 20 per cent had a negative net farm
income). On average, the total assets of dairy farms in England
was £632,900 and their total liabilities £95,400. A
broadly similar pattern was shown in Wales.
1.9 The forecast 1998-99 income for full time dairy farms
derived from the Farm Business Survey, is40 per cent lower than
in 1997-98. This follows a 35 per cent fall the previous year.
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