The dairy crisis over the past two years has resulted in UK dairy farmers building up £1billion of debt, claims Kite Consulting.
Speaking at a seminar in Edinburgh, attended by industry body representatives, the firm’s managing director John Allen said debt per cow had increased from approximately £1,900 in 2014 to £2,356 in 2016.
“Kite data indicates a further rise to £2,700 to March 2017; this equates to 36p per litre borrowed,” said Mr Allen.
“We have had two years of building up debt which equates to over £1billion. Farmers have extended overdrafts, and some have sold heifers and are now flying herds. But a lot of that debt was not always at the bank, and a lot has been built up with creditors, especially the feed trade.”
He said many farmers had also cashed in pensions and sold shares to free up cash.
Mr Allen added that accumulation of debt had cancelled out around £1billion of investment made by industry between 2008 and 2015 – driven largely by aligned milk price pools and grants through schemes such as the Scottish Rural Development Programme.
“Only 1.4% of operators have left in the past year. And in Scotland there’s been big dependence on other income – beef has been a big supporter,” added Mr Allen.
“Since 2015 farmers have taken down their break-even milk price by around 4p a litre. As times have got tough farmers have taken out some serious amount of cash in terms of cost savings. This is the point where farmers should take a bow because they have really toughened up. The farmers I am dealing with now are far more business savvy.”
He urged all dairy farmers to use the “breathing space” allowed by the current period of milk price stability to take stock of their situation and plan for the future.
In particular, Mr Allen urged farmers to make use of benchmarking groups and services.
He said Kite clients who benchmarked and participated in farmer discussion groups had performed better than those who had not. There was also a direct link between improved fertility and lower cost of production, he added.
Scottish Dairy Growth Board chairman Paul Grant encouraged more farmers to benchmark.
He said: “To achieve competitive pricing and therefore a good future, farmers should seriously consider benchmarking. It has clearly made a very positive impact where introduced by a significant proportion of farmers.”
