Mega-dairies ‘bad for business’

Dairy farmers looking to secure their future could achieve better returns from average sized pasture-based farms than from massive mega-dairies, according to a new campaign report.

Weighing up the Economics of Dairy Farms is the latest briefing1 from the World Society for the Protection of Animals (WSPA) Not in my Cuppa campaign, set up in February 2010 to fight the industry watershed moment represented by Nocton Dairies controversial application for an 8,100 dairy unit.

The briefing endorsed by farmers, economists and business figures offers a third option to the much touted get big or get out argument put forward by those euphemistically promoting sustainable intensification as the means to address growing concerns about global food security and to provide a survival strategy for struggling dairy farmers.

Backed by Dragons Den businesswoman Deborah Meaden, the report is intended to encourage a wider public and industry debate around the concerns over food security, the import/export debate and economic stability for the dairy sector.

It compares the mega-dairy business model against the tried and tested pasture-based system widely adopted by milk producers in the UK and finds mega-dairies to be incredibly exposed to global price hikes and unstable markets.

The report authors2 point out that British dairy farmers are already in a volatile situation and their future needs to be built on consistency, not more vulnerability.

If times are good a mega-dairy could be more profitable, but in bad times it can easily go bust. Evidence from US experts shows that mega-dairies do not weather a recession as well as pastured-based systems.

Neil Darwent, dairy farm manager and Nuffield Scholar, who co-wrote the briefing said: “Evidence is emerging that the pasture-based systems we have today are both efficient and competitive farmers do not need to turn to mega-dairies to survive.

The pasture-based dairy herds that produce the majority of the UKs milk are not inherently inefficient farmers are failing to generate satisfactory returns due to an imbalance of power in the supply chain. I am working with WSPA to raise awareness of the value of pasture-based milk production, in an attempt to relieve the enormous pressure placed on both farmers and their cows to deliver more for less, which is driving the exodus of producers from our industry and destroying the fabric of our countryside.

An illustration of the operational costs and profit opportunities3 offered by the mega-dairy versus the small scale holistic pasture model, shows that a mega-dairy is highly vulnerable to milk price fluctuations, only really coming into its own if the price of milk were to be fixed for 10 years or more.

This is impossible in the real world however, so pasture-based dairying gives farmers a more realistic chance to turn a profit in these unstable markets, with an edge of up to 5 pence per litre.

Contrast this with the mega-dairy model where farmers can see a 50,000 profit nosedive into a 50,000 loss in a single year. 4

Suzi Morris, WSPA UK Director said: On our investigative trip to the US last year, we met with dairy economists and industrial farming academic experts who explained the enormous financial vulnerability of mega-dairies. It is a high-risk system because nobody can predict how many years will deliver high milk prices.

WSPA feels there should be a wider discussion before more farmers feel pressured to go down this industrial route. Our business model is radical in its simplicity. We want dairy farming to maintain its pasture based system and measure profit on keeping robust cows that are healthier and live longer, as well as the quantity of milk they produced.

This view is shared by British entrepreneur and businesswoman Deborah Meaden, who sees little viability in the mega-dairy business model as a long-term investment.

The Dragons Den investor said: I recommend that sceptics read WSPAs report. The animal welfare charity is not seeking to further complicate or to place a burden on our dairy farmers with their Not in my Cuppa campaign, or indeed the alternatives that they put forward in their dairy economics paper. WSPA recognises what is best about British dairy and we should all champion that.

1. Previous reports from the Not in my Cuppa campaign include:
a. Not on our Cornflakes the wider case against mega-dairies http://notinmycuppa.com/wp-content/uploads/2010/11/WSPA-case-against-mega-dairies.pdf
b. Old MacDonald had a farm impacts of mega-farms on family farms http://www.wspa.org.uk/Images/Old%20MacDonald%20had%20a%20farm%20(report)_tcm9-21450.pdf#false
2. Contributions by investor Deborah Meaden, dairy farmer Neil Darwent, ex-dairy turned arable farmer Peter Lundgren. Input from Ken Thomson, Professor Emeritus at the University of Aberdeen and Tom Kriegl, Associate Professor, Center for Dairy Profitability, University of Wisconsin.
3. The data is hypothetical, but the milk prices are similar to those in the USA in 2008 (25p per litre) and 2009 (15p per litre). When milk price is good, high output operators, selling large volumes of milk, might make profits 25% higher than low output producers. But when the milk price falls, low cost producers in this example still break even, while the high output herds make a loss of 5p on every litre sold instead of the previous profit margin of 5p per litre. Therefore a 50,000 profit can turn into a 50,000 loss in one year.
4. There is very little economic data available in the UK, when it comes to measurement and comparison of the finances of small dairy farms versus large mega-dairy farms, because they are not an established industry norm as in other countries reliant on high-output systems, such as the US. Therefore these costs had to be created based on average costs and the key point to be aware of is the differential in production costs which would apply in any situation an edge of up to 5 pence per litre.
About not in my cuppa (www.notinmycuppa.com):
Not in my Cuppa is the World Society for the Protection of Animals’ (WSPA) campaign against allowing intensive US-style dairy farming to spread in Britain. WSPA strongly believes there is an alternative, more positive future for the UK dairy industry, which places good animal welfare at its heart, but can still work for farmers and consumers alike. Active in more than 50 countries, we hold consultative status at the Council of Europe and collaborate with national governments and the United Nations.