Dairy farm cost competitiveness substantially shifting
The results of the IFCN Dairy Report 2016 have indicated substantially decreased costs for dairy farmers in 2015.
Costs of milk production decreased from $46 (€42) to $40.5 (€37)/100kg milk on average of all farms analysed. The main reason for this is the exchange rates as well as farmers’ cost cutting abilities continuing to impact cost competitiveness in the second year of the crisis.
Despite 2014 being a top year for many in the dairy industry, this report suggests that 2015 has been the worst in recent decades for most. The average milk price in the world dropped 33% from a very high level in 2014 to an average of $29.4 (€26.7)/100kg energy corrected milk in 2015.
Torsten Hemme, managing director of the IFCN, says, “We are now in the third milk price crisis since 2007. This crisis and also other factors have created the biggest shifts in dairy competitiveness I have ever seen in my entire career as dairy economist.”
On average, farms reduced their costs with $5.5 (€5)/100 kg ECM. Strong cost reduction took place in western Europe and central and eastern European countries due to exchange rate and post quota effects, while costs were stable or rising in China, India, USA relating to inflation rate, labour, feed.
However, reduction of milk price was stronger than the decline in costs. As a result, farm income experienced a serious drop in 2015, which continued in 2016.
Amit Saha leading farm analysis at IFCN, adds, “Worst hit dairy farmers in terms of profitability in 2015 were in western Europe, North America, Oceania, where over 75% did not cover their full economic costs. In other regions the situation was less dire, with roughly 30% of farms not covering their costs.”
While dairy farm economics are improving in Brazil and New Zealand with good or slightly increasing milk prices currently, things are getting more challenging in the US, EU, China and India.