Milk producers have been underestimating the real costs of production by more than 20%, according to an industry working party representing production and recording interests.

Initiated by the Royal Association of British Dairy Farmers (RABDF), following industry-wide consultation in August last year, a working party comprising members of ADAS, Promar, the John Easterbrooke Partnership and practical dairy farmers was established to investigate the subject.

One of the main objectives of the group at the start was to ensure that everyone in the dairy food chain understood how much it really costs to produce a litre of milk – given the misinformation prevalent at the time, that producers could make a profit and have enough to reinvest even at a milk price of 16p/litre.

‘Having succeeded in drawing the various organisations together for round table discussions, it soon became apparent that fixed costs and farm overheads were problem areas. But the key element was that in most recording schemes’ figures the farmer’s own remuneration was either underestimated or excluded altogether!’ said Tim Brigstocke, RABDF chairman and leader of the working party.

‘With margins continuing to be low, or in many cases negative, it is essential that producers don’t kid themselves any longer that they can exist and grow at a milk price of 16p or even 18p/litre.

‘According to our study, the true costs of production could be as high as 23p/litre, taking account of the farmer’s remuneration, family labour costs, pensions and staff development. It is our view that these costs have been underestimated routinely by at least 20% for many years and the time is well overdue for the real situation to be broadcast far and wide.

‘It would undoubtedly be in the best interests of the British dairy farmer if all milk recording bodies and all companies involved in dairy management were to adopt the new RABDF guidelines whenever they publish information on the costs of milk production. The guidelines have already been accepted by many of the key companies in this field and the signs are good for industry-wide acceptance.’

Discussion points 1 Why is it difficult for self-employed persons to estimate the true cost of labour for their business?
2 How can self-employed persons estimate a labour cost for their work?