CAN WE ELIMINATE THE UK DAIRY TRADE DEFICIT BY 2025?


The Defra Dairy Supply Chain Forum wants the UK industry to work together to produce up to an extra 4 billion litres of milk a year. John Giles, Divisional Director with Promar International, considers the practicalities and some implications for the feed sector.


The Defra Dairy Supply Chain Forum (DSCF) has set out its vision for how the British dairy sector might look like in the future. It is an


ambitious plan, supported by all key industry stakeholders, which revolves around eliminating the trade deficit of the UK dairy sector by 2025. It will involve growing our share of both domestic and international markets and will have a significant impact on all participants in the supply chain, including suppliers of animal feed. Over the last decade, global dairy production has increased


by 2.1% per annum and in the next 10 years is predicted to expand by 153 bn litres. While most of this increased output will come from the developing countries, around 25% is expected to come from the developed countries, including the UK, and the DSCF vision is an attempt to focus minds on how the UK might benefit. The DSCF vision proposes a target of maybe up to as much as


four billion litres extra – which is a lot of milk – around 30% of the current UK annual output. So the DSCF vision is setting out a significant challenge, especially when you consider that in the last thirty years, the volume of milk produced in the UK has declined by one quarter, the number of herds in the UK has declined by two thirds and the number of cows has fallen by 45%, although partly offset by yield increases of around 50%. The question then is: how can output be increased to anywhere near the suggested levels?


CAN WE PRODUCE THE EXTRA MILK? Some extra output will come from organic growth as the trend of herd expansion and yield increases will almost certainly continue. In the foreseeable future, however, it is difficult to see yield per cow rising at


anything more than the increases in genetic merit, or around 0.3% per year, although it is likely herd size will continue to increase. It should not be expected that organic growth will be the major


driving force, as in recent years the total UK herd has stagnated, but increases in average herd size have been offset by the fall in the number of herds. It is inevitable some farmers will continue to exit the industry,


particularly those with poor economic performance or where there is no successor. External factors such as NVZ compliance and carbon footprinting will also impact on the rate at which farmers look to leave the industry. With a continuing outflow of producers, it will require those


remaining to expand significantly, or for there to be new entrants prepared to set up new units if the DSCF expectation is to become anything approaching a reality. Growth of around two billion litres initially could be achieved by


establishing 500 more herds each with 500 cows yielding an average of 8,000 litres. Setting up brand new units may seem optimistic to many UK producers, but it is precisely what is happening elsewhere, with hundreds of millions of US$ being invested into large scale herds around the globe. Any new entrant or individual embarking on expansion in an industry will only succeed if their technical performance and cost control is as good as, if not better than the best players already in the industry. A new system can incorporate the most up to date technology and design criteria to achieve high levels of efficiency and a competitive advantage over older facilities. The level of return is determined by market returns and the overall


level of costs. The top 25% of Promar costed herds achieved an operating profit in 2012 of around £800 per cow or just over 9 pence per litre, with a milk price close to 30 pence per litre. We have evaluated the returns for a large 500 cow dairy unit across


a range of operating profit levels from 8 to 12 pence per litre. This operating profit is the amount of income left after deducting operating costs. It excludes subsidy income and is available to cover the costs of finance, depreciation, rents and taxation as well as leaving a reward for the investor. We estimate £3 million would be needed to provide the


infrastructure for 500 cows on a greenfield site, although the total amount required could be up to 50% higher or lower than this, depending on the specification and system chosen by the investor. Taking into account the costs of the development, and excluding


PAGE 30 JANUARY/FEBRUARY 2014 FEED COMPOUNDER


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