It seems that the 2005-06 milk year will see a record shortfall of wholesale UK production against quota.
The RPA has not yet confirmed the figures, but the final position could see production levels at more than 300m litres below quota.
This is the fifth time in the last six years that the UK has been below quota. The trend of production is clearly on a downwards slope: capacity is decreasing as many farmers leave the industry and those that remain are not taking up the slack by expanding fast enough. Production in the first few months of the 2006-07 milk year has also begun slowly, raising the possibility that this year’s production will again fail to reach quota. Indeed, the industry may be moving towards a situation where quota is no longer the major determinant of output.
However, there is still a long way to go before it is possible to talk about a milk shortage. In fact, some commentators believe that production would need to decrease by around 3-4bn litres before we reached the situation where only core high-value markets were left. But the industry may have reached tipping point over the past few weeks. As a result of the price war initiated by ASDA, the supermarket’s main supplier, Arla, subsequently reduced its milk price for June. This prompted the usual round of tit-for-tat reductions by other buyers. Many producers had hoped that prices had reached a period of stability, but this has not happened. For many, especially in light of cost increases, these reductions may be the final straw.
We are grateful to Andersons, the farm business consultants, for their contribution to this bulletin. We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Limited 2006.
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