Dairy farmers hanging on to quota ‘just in case’ of a change of policy
The RPA provisional production figures for August 2014 were released on 6th September and show that UK dairy farmers delivered 1,192.9 million litres of milk, beating all the monthly production records for August since they were first publicised in 1994. This represents a 6.9% increase on the production achieved in August 2013, and continues the trend of increased production month in month out which started in July 2013. Cumulatively this brings UK production to 6,271.3 million litres since April this year, which represents an 8.4% (approx.) increase in production so far for the 2014/15 milk year compared to the same point in 2013/2014 (which did have a poor start due to the awful winter of 2012/13). This still remains less cumulatively than the UK produced up to August in 2004, when we last came close to hitting quota (when there were 6,316.2 million litres delivered up to August), and since that date UK national quota has increased from 14,029.1 million litres to 15,292.6 million litres.
We now know that, after the butterfat adjustment, the UK was under quota in 2013/14 by only 1.613 billion litres which equates to an 8.9% shortfall (approx.). Therefore the cumulative increased production figure of 8.4% does seem to indicate we are currently closer than many commentators expected in this final year.
However despite these high production figures it still remains unlikely that the UK will hit quota this year, as it would only take one bad month to put it beyond reach; but there does remain, however slight, a chance. We have been contacted in the recent weeks by a number of dairy farmers who sell to small specialist milk purchasers who have been happy to collect milk from them without them holding quota, as there has been little prospect of a levy for the last 10 years. These smaller milk purchasers now however feel exposed to the possibility of hitting quota, as they would be the first port of call for any levy penalty (which they would then pass out to their milk suppliers), and they have therefore asked their suppliers to gain some quota cover. As a result there has been a minor surge in interest in acquiring quota, although the prices offered have remained in the low fractions of a penny per litre, as they are only being bought as “cheap insurance” to keep a well-paying local milk purchaser happy.
The trouble of course is that those dairy farmers with surplus or “parked” quota, who were initially tempted to put their quota on the agents’ books due to the very early season high prices being achieved (it did rise to 2ppl very briefly in April/May), are not so keen to sell at the 0.1 and 0.15ppl level that they are now being offered. They would rather keep the quota “on their books” as it were, “just in case” the EU end up changing their mind about milk quota in a few years’ time, if EU production spirals out of control once again, and as some dairy farmers speculate, decide to reintroduce quotas to get control of production once more. It seems unlikely that, even if the EU were to decide to re-introduce milk quota at some point in the future, that they would base any new allocation of quota on what was held at the end of March 2015, but as they say, “stranger things have happened”.
As for the demise of milk quota itself, there has even been recent speculation amongst dairy farmers (and at the time of writing we have to confess we do not know where they have heard this possibility) that the EU may be persuaded to extend milk quotas beyond March 2015. The current turmoil in the milk markets caused by the Russian trade embargo on dairy products, the slowing of demand from China and the bumper production in Europe and the US this year, all of which have contributed to cause the global dairy price to drop 40% since February this year (although thankfully the UK has not had such a severe price reduction), has resulted in the EC introduction of emergency market support measures to support EU dairy farmers. Despite the fact that the Private Storage Aid for butter and Skimmed Milk Powder are being provided under existing provisions in the CAP, it still smacks somewhat of the dreaded butter mountains and milk lakes that were the original cause for quotas being introduced in 1980’s. We have found no evidence that this is actually being considered by the EU, and the RPA are adamant that there is no possibility of this happening as the phasing out process is simply too far down the line, but this type of speculation also makes the vendors on our books less inclined to sell for the low prices currently being offered.
If you would like to discuss your milk quota situation, please contact Julia Clark at Townsend Chartered Surveyors on 01392 823935.
