1. The Dairy Industry Today Nick Everington Chief Executive Royal Association of British Dairy Farmers (RABDF) Tel 0845 458 2711 nickeverington@rabdf.co.uk www.rabdf.co.uk

2. The Changing Face of UK Dairy Farming * Projected figures from “The Future of UK Dairy Farming” Report– defra 2004 Note: Current herd size in EU-15 is 37, in New Zealand it is 251! 195019801992200320062010* Cow Numbers (000) 340032242664219220741900 Number of Herds196,00056,24739,18023,01819,58916,479 Milk Yield/Cow (L)287046705240649566927400 Herd Size17576882106115

3. By Country1995200420062010 ** England & Wales 28,09315,48613,96210,756 (Wales=1581) Scotland2,2391,5691,569*1,523 N. Ireland5,4094,20140584,200 UK35,74121,61619,58916,479 UK Dairy Production Holdings *Latest Figure available 2004 **Projected figures from “The Future of UK Dairy Farming” Report – defra 2004

4. Utilisation of Milk by UK Dairies Approximately 50% of the 14bn litres of milk produced on UK dairy farms goes in to the liquid market a decline of 3% since 1995.The rest is used in processing for which the number outlets for farmers to sell milk to has declined. Eg 8 companies account for 74% of cheese production.

5. UK Dairy Industry - Past the Farm Gate (2004) 130 Milk purchasers and over 100 processors. 5 Largest purchasers from producers are: First Milk Milk Link Dairy Farmers of Britain UDF (NI) Dairy Crest About 86% liquid milk sold through retailers (55% in 1995). Liquid milk consumption - 2.18 litres/head per week (3.84 pints) in 2002, 2.7 litres in the 1970’s but 2004/5 saw the first increase in consumption for 30 years. Sales of branded milks and cheeses showing significant growth.

6. Opportunities to Add Value in the Dairy Market Milk –Specially selected, Designer ie Omega 3, Breakfast, Night Time, Breed Specific, Regional Organic Milk –Demand is growing by 25% per year. –Still only represents just one in every 30 pints sold. Dairy Beverages –UK lags behind other markets in the development of flavoured milk, probiotics etc –The market is now growing very quickly. Total value £300m in 2004 - up 39% on previous year. –Sales of yoghurt drinks grew 5 x faster than flavoured milk sales in 2004. –A total of 8.4m households bought yoghurt drinks in 2004, 40% more than in 2003. –However, dairy beverage sales in UK accounted for less than 1% of total non- alcoholic sales by volume. Compared with 7.1% in Finland, 5.8% in Sweden 4.5% in Denmark 2.5% in The Netherlands Yoghurt –Use relatively low volumes of milk but some important UK produced brands ie Mueller Cheese –400 + UK varieties. Regional Cheeses being more actively marketed by supermarkets –Large Potential Market - Imports account for approx 50% Ice Cream –Producer Processor potential for high margins but sales limited to local market without good distribution network

7. Consumption of Dairy Products in EU

8. EU Milk Prices In 2004/2005 - UK still at the bottom of league table. Seventh year in succession Average UK milk price was 10% below EU average. In previous years it had been 16% below average. 37% gap between UK at the bottom and Italy who receive a milk price of 35.8 euros/100kg compared to UK at 25.9

9. Why has the UK a low Farm Gate Milk Price? Weak selling systems - poor industry structure. Bad forward contracts. Excess profits up the dairy food chain Too much spring milk - dramatic move to spring calving - seasonality - is this what the market needs? Currency Effect - £ / Euro relationship - IMPE not working p/litre 2005 / 2006 Milk Year Farm Gate Milk Price = 18.73ppl Source Defra

10. Supermarket Liquid Milk Margins Dairy Farmer Price ppl Retail Price ppl Supermarket Operating Costs & Margin % Processor Operating Costs & Margin % 199524.9442.00339 200016.9339.001847 200318.146.62846 200418.547.52846 200518.450.13147 Adapted from MDC “Dairy Supply Chain Margins” Report, September 2005)

11. Net Dairy Farm Incomes – Source: defra Incomes rose by 10% in 05/06 but SPS payments are included by defra (account for majority of income ) despite the fact payments are supposed to be decoupled from production Modulation & financial discipline could halve SPS payments over next 6 years Figures exclude: –Interest charges = 0.5ppl = £5,000 –Unpaid family labour = 1ppl = £10,000 –Cost of new waste regulations average £600 per farm –Increased slurry storage costs resulting from NVZ measures –Allowance for reinvestment essential for a sustainable dairy industry Milk Year April - March £ Thousands) Per Farm 1998 /9910.9 1999 / 009.0 2000 / 0114.3 2001 / 0228.2 2002 / 0314.2 2003 / 0421.1 2004 / 0523.7 2005 / 06 *26.0 * Provisional Figure

12. UK Dairy Farming - Strategies For Survival Farm businesses either need to get bigger or collaborate in sharing, buying or marketing Rise above commodity price by offering substantial product attributes, backed by strong branding Be dedicated to certain customers or markets Add value on the farm Operational excellence - best practice Look at diversification possibilities (alternative uses for buildings etc)

13. Implications for Careers in the Dairy Food Chain Fewer sons and daughters are following their parents in to dairy farming creating opportunities for those who wish to farm eg share farming, partnerships etc Shortage of skilled herdspersons despite good pay, conditions and benefits of working in the countryside Successful dairy farms in the future will need a better qualified workforce (Today 50% have degrees or diplomas) The industry needs more Dairy Service Engineers, Machinery Fitters, Large Animal Vets, Herd Managers, Good Technical People in the Supply and Processing Industries.