Dairy confidence could be under threat, says report

British dairy farmers have given a vote of confidence to the medium and long term outlook for both the industry and their own farm businesses, according to the Farmer Intentions Survey for 2012.

Speaking at the AHDB Outlook Conference, analyst Julie Macleod revealed the headline findings of the annual survey, which showed that 36% of farmers in Britain said they intend to expand milk production over the next two years, "the highest proportion intending to expand that we have seen since 2008," she said.

Another significant figure is the number of farmers intending to leave the industry over the next two years. "This has fallen to 7%," said Ms Macleod, "a marked contrast to the 22% of farmers intending to leave the industry when the survey was first carried out in 2004, and the 13% who said they were intending to leave the industry in the 2011 survey.

However, Ms Macleod said that in the short time since the snapshot of dairy confidence was taken in March, the global dairy market situation had changed.

"A strong supply balance against weakening demand has caused dairy wholesale prices to fall," she explained. "We have now seen this translating through to farmgate prices, and so while farmers have given a vote of confidence for the medium term outlook, it is likely that dairy producers in Britain will be facing a challenging year ahead."

"Overall, the level of confidence this year is similar to that of 2008," said Ms Macleod. "At that time we had seen the milk price increase rapidly in the period before the survey. Prior to the very recent milk price announcements, we had seen milk price in the previous 12 months improve steadily but we had also seen input prices increase as well.

"High input costs and milk price remain among the top threats cited for farmers in the survey, and managing these issues could be challenging for the foreseeable future."

Analyst Karolina Klaskova, also speaking at the conference said "While milk price obviously has an impact on profit, we know from our analysis that given the way the market works, controlling cost of production is where most dairy farmers have an opportunity to make a difference to their net margin."

The increased level of confidence was also reflected in a new question which asked farmers to rate how confident they felt about the next five years on a scale of one to five, with five being extremely confident. "Dairy farmers gave an average score of 3.6 for the level of confidence they felt about their own future," said Ms Macleod, "and a rating of 3.4 for the future of the industry."