Dairy farmers need to take advantage of a predicted period of stability in the milk market to prepare for more volatility when EU quotas are removed in 2015.
The warning comes from environmental and agricultural consultancy ADAS, which said many British farmers will be forced to make substantial investment in their dairy operations to remain competitive when market regulation is relaxed by Brussels in 2015.
Carolyn Smith, a dairy consultant at ADAS said Organisation for Economic Co-operation and Development (OECD) forecast figures suggest milk prices are set to enter a period of rising stability after recent turbulence caused by fluctuations in the farm gate price, rising fertiliser and oil costs and a drop in demand.
She said: "Dairy farmers have had a tough time of it during the recession because their income has been falling while input costs have risen. However demand is expected to pick up, and that, coupled with EU measures like the recently introduced Private Storage Aid and the export fund scheme means British farmers can probably expect farm gate prices to stabilise in the medium term as supply and demand balances out."
Ms Smith added that it was critical farmers took advantage of the anticipated rise in prices predicted for next year and consider upgrading their facilities to take account of new legislative requirements, opportunities to expand their operations and to improve technical and financial performance.
"There is not much recovery time and the window of opportunity will not be open for long so it important to begin to plan now. Those farmers who do decide to invest in their facilities need to consider exactly what lies ahead and how the money can be best spent improving their operations."
Managing a £250,000 dairy investment loan
Carolyn Smith said: "Typically, a farmer with 200 cows, producing 1.4 million litres per annum may need to borrow £250,000 to fund upgrades to meet new regulations or business expansion. With finance at 6 per cent interest over 15 years, the annual charge will be equivalent to 1.8 pence per litre (p/l) on the investment."
"We’re now seeing production costs of more than 25p/l on many farms, and as farm gate prices now range between17.6p/l to 27.16p/l in June, with 23.59p/l to 28.45p/l being the rolling 12 month average to June, further investment at this scale leaves some challenging questions for farmers to consider," she concluded.
