More than one in three dairy farmers planning to expand milk production

Research conducted by Barclays reveals that more than one in three (34 per cent) dairy farmers in England and Wales are planning to expand milk production in the next five years. 57 per cent said that their milk production would stay the same, and 8 per cent were intending to reduce production.

Commenting on the survey, Euryn Jones, National Agricultural Specialist at Barclays said: "The results reflect a continuation in the trend for those dairy farming businesses that are committed to milk production to continue expanding.

"There has been ongoing restructuring in this country’s milk production for many years, with a well established trend for producer numbers to decline, but coupled with an expansion in production by those remaining in the sector."

Of the 300 farmers interviewed, 24 per cent indicated that they would be investing £50,000 to £100,000; 7 per cent planned to invest between £100,000 and £250,000; and 3 per cent were planning to invest more than £250,000. This means that 34 per cent said that they were planning to invest more than £50,000 – a figure that corresponds with the number of farmers who told us that they were planning to expand production.

Euryn Jones said that "While it is often possible to undertake some modest expansion in milk production without significant capital expenditure, any major expansion will require investment. There is a wide range in the amount of investment planned, which reflects the range in scale of milk production on farms in England and Wales and the amount of capital expenditure needed to accomplish the planned expansion. In some cases additional capital required will be limited to finance the purchase of more cows, whereas in other cases entire new units are planned, consisting of a milking parlour, cattle housing, milk tank, and slurry storage."

Commenting further Euryn continued: "Confidence in the dairy sector was dented earlier this year by significant increases in input costs coupled with inertia in milk price rises. However some farms, particularly those achieving good business performance and above average milk prices have been investing in their businesses and it is good to see that a significant number of milk producers are planning to invest in the next five years.

"Barclays is keen to provide finance to support expanding dairy businesses that can demonstrate a viable borrowing proposition. The key requirement to ensure the bank’s support is to demonstrate that sufficient cash is likely to be generated to service additional borrowing."

Key messages for farmers seeking finance for new borrowing are:

• Be clear about the aspirations for the future of your business and explain how additional finance is to be invested

• Outline how your business will benefit from additional investment and demonstrate how new borrowing will be serviced

• Estimate over what period you wish to repay a new loan and consider whether you want to borrow at variable or fixed rates