December 20, 2004

Dairy Production in UK May Fall Below Quota

Dairy production in the UK is likely to fall below quota in the next two or three years.

Industry leaders have been warned that given a worst-case scenario of sharply falling prices, processors face a drop of over one billion litres against current supplies of 14 billion by 2007-08.

But Scottish production is expected to buck the trend because of its larger herd, according to leading market analyst Professor David Colman of Manchester University.

Previewing his latest modelling exercise on the future of UK milk production to the Dairy Supply Chain Forum, due to be presented shortly to the government, he said it was a tough project due to the high level of imponderables.

In recent years, the supply side of the market had been influenced by the counter veiling forces of cost reduction by producers and price reduction by the rest of the chain.

But while farmers had cut production costs by nearly 10 per cent in six years, largely through innovation and structural transformation at herd level, they had also seen labour and other costs rise by nearly 13 per cent, making further gains debatable. Currently, there was an upswing in dairy farmer confidence but this could change overnight, he said.