The Welsh Government has announced a scheme to support dairy farmers affected by the Covid-19 crisis. It is largely the same as the one already outlined for England – dairy farmers who have lost more than 25% of their income in April and May will be entitled to up to £10,000 to cover 70% of their losses. Further details of the scheme including how to apply are expected shortly. It will now been seen whether Scotland also introduces such a scheme.
Following intense lobbying, the Government has announced further support for dairy farmers affected by the Covid-19 outbreak. Businesses which have seen their income drop by more than 25% during April and May will be able to claim under the scheme. The support will be equal to 70% of the lost income for these months, up to a maximum of £10,000.
More details on the scheme, including how to apply, are still awaited. The Government announcement can be seen here – https://www.gov.uk/government/news/new-funding-to-support-dairy-farmers-through-coronavirus.
There is also going to be a £1m advertising campaign to persuade the public to consume more milk and milk products – in order to offset the fall in demand caused by the closure of coffee shops, restaurants etc. The campaign is part-funded by the AHDB and partly by the four devolved UK Agricultural Departments.
Covid-19 has seen some producers having to discard their milk as increased demand from the retail sector has not made up for volumes usually consumed in the food service sector. But you cannot turn a dairy cow ‘off and on’ and production is expected to continue to rise as we head towards the spring peak. According to the AHDB, GB average daily milk deliveries to processors for the week ending 11th April, were up 1.4% on the previous week’s average. This is, however, 2.3% below the average deliveries for the same week in 2019, but remains in-line with the AHDB’s forecast for this year.
These figures include an estimated 800,000-900,000 litres of milk which was not collected during the week ending 11th April and had to be thrown away by producers. This volume is about 0.4% of the total milk delivered for the week. Since then, according to the AHDB, there has no further reports of milk not being collected. However, in some cases, only the fat content has been utilised, with the skim reportedly ending up in anaerobic digesters. As a result of the over-supply, producers have seen some processors introduce new pricing measures. This has led to calls for a specific support scheme for the sector.
At the beginning of April, all Muller suppliers were asked to reduce their supply by 3% until the end of May. It is unclear what action will be taken if a producer fails to cooperate. Perhaps the most notable actions have been those of Medina and Freshways – both of which have a significant share of their business in the food service sector. Suppliers to Medina will see their milk price cut by 5ppl as from the 1st May after the processor announced a further 3ppl drop, after having already said the price would fall by 2ppl. This will see its standard litre down to 20.75ppl. In addition payments will also be deferred by 21 days.
Freshways has back-dated its price cut by 13 days and is also extending its payment terms. Freshways has restricted its A pricing to 60% of a producer’s current A quota, with milk delivered in March being paid 50% at the end of April and 50% by 15th May. On top of this, the processor is reported to have actually increased its prices to supply Nursing Homes, something which has not gone un-noticed by the national press or some of its customers in the food service, who are looking to distance themselves from the processor’s negative publicity.
Not all processor are cutting their prices though, some of the supermarket aligned contracts have seen rises and Belton Farm (cheese), Barbers (cheese) and First Milk (cheese) have all announced they will retain their current price until at least June. Before it announced the 3% supply reduction, Muller (see earlier) told suppliers they would receive a 1ppl rise from May 1st, this was rather surprising at the time and will probably be short-lived.
It is estimated around 550 farmers, predominantly those supplying Freshways and Medina are under serious financial pressure. The RABDF has launched a survey and is asking all those affected by the Covid-19 milk crisis to submit an online daily account of their losses so that it can supply Defra with ‘accurate and credible supportive data’. The survey can be accessed at www.rabdf.co.uk/survey.
Even though many in the industry have been calling for targeted support, the response from the Government so far has been to relax some elements of competition law to make it easier for processors to be able to come together and work out how to temporarily reduce production to create space in the market. It has asked the AHDB and Dairy UK to co-ordinate a proposal. But the industry is claiming this is too late, particularly for those 550 dairy farmers who need urgent support now to help with their cashflow. A letter has been sent to Defra calling for a targeted grant scheme similar to those being offered to the retail, hospitality and leisure sectors.
In a response to the problems Coronarvirus has caused to markets across Europe, the EU has proposed a new package of measures to support the agri-food sector. For dairy this will see the opening of Private Storage Aid for SMP, butter and all cheeses that are suitable for storage. The volume allocations for each country have not been set yet. Full details are expected by the end of the month.
The past month has been one of the most tumultuous for generations as the meat sector as it has grappled with the lockdown brought about by the onset of the Covid-19 pandemic (Covid crisis). Retailers and their partners have struggled under the strain of consumer panic buying whilst continuing operations whilst implementing social distancing. Vast swathes of the food services and catering trade (aside from limited delivery and click-and-collect operations) have also presented significant challenges throughout supply-chains, particularly in beef and lamb but also in pigmeat.
The beef sector has experienced price declines recently, primarily due to the loss of the food services trade. In the UK, about one-third of beef product sales in monetary terms are to the food service sector. Such sales consist of the highest value products (e.g. fillet steaks). With the implosion of demand, this has a much more pronounced impact on carcase value, which some have estimated to have declined by around £200 per head (or 15-20%) at the processing level. Increases in retail sales which have taken place are primarily for mince and burgers, which are of lower value, thus only partially compensating for steak sales losses. At the farm level, price declines have remained relatively small with GB steer prices on 18th April (324 ppkg) approximately 4% lower than prices on 21st March (336 ppkg). If the Covid Crisis continues for a sustained period, further farmgate declines are likely.
The lamb trade has also experienced issues, although the Easter holiday and the recent commencement of Ramadan have helped prices to recover recently. That said, major concerns remain due to the closure of the food services sector in continental Europe, most notably France. As more UK lamb comes onto the market later in the year, any oversupply at that point will have a much more pronounced effect on prices. If restaurants do open, they are unlikely to be operating at capacity, due to social distancing measures. As most lamb is eaten outside of the home, this will present difficulties.
Similar trends have taken place in the pig meat sector with convenience products (e.g. bacon and sausages) seeing sales increase significantly but demand for roasting cuts has decreased markedly. There are additional complexities at play more globally in pig meat. Processing capacity in the US has been hit by coronavirus cases amongst workers in meat plants, meaning that production lines have shut down. Whilst Europe has not witnessed processing disruption on the scale of the US, food services demand has lowered, meaning price declines have resulted.
Much of what will happen in the pig meat sector will be governed by the recovery in the Chinese market which has been hit by both the Covid crisis and African Swine Fever (ASF). China has started to re-open again after a lockdown in some regions, and some analysts have predicted that Chinese demand will be back to 90% of normal levels by the end of the year. On the supply-side, it has had to deal with ASF which has almost halved its breeding sow heard, and is only in the early stages of recovery. Short-term, the deficit of pork in China should help European prices recover from Covid. It could also provide some support in other protein categories but will not compensate for the losses in carcase value seen in beef, nor the potential oversupply in lamb as the UK production season progresses.
In reaction to the Covid crisis, various forms of support have been instigated across Europe. Some mechanisms have been aimed at the wider economy, whilst more recently, specific measures to support the farming sector have been announced by the EU-27.
Looking at the economy generally, whilst the UK has opted for a furlough system (subsidising 80% of wages up to £2,500 per month), this scheme is of limited use to the food sector as it necessitates workers being off work for that period. This has created difficulties for processors who have to continue operations whilst also coping with price declines. The wage subsidy systems in place elsewhere in countries such as the Netherlands, Ireland and New Zealand, arguably offers more support to sectors such as agri-food where turnover declines are projected, but production must continue. In the Netherlands for example, if a 25% decrease in turnover is projected, the State will subsidise approximately 22.5% of wages for a 12-week period.
The EU-27 has also recently announced a range of measures to support agricultural commodities, including the re-opening of Private Storage Aid (PSA) for several commodities including beef (25,000 tonnes) and lamb (36,000 tonnes). Pig meat will not be supported by this scheme. PSA will allow the temporary withdrawal of products from the market for a minimum of 2 to 3 months, and a maximum period of 5 to 6 months. It has been initiated to reduce supply and rebalance the market. There are shortcomings though. In beef, storing product means freezing it, thus value deterioration versus fresh. Also, when the storage period ends, that product will need to be released onto the market thus increasing supply and lowering prices at that point. The EU plans to formally agree the scheme by the end of April. Previously, the EU also announced plans to offer increased flexibility to CAP and Rural Development funding, including larger BPS advances to farmers.
In the UK, however, there has not been any announcement of support specifically directed towards the agri-food sector. Whilst many of the more generic support measures (e.g. Coronavirus Business Loan Interruption Scheme (CBILS)) will offer some assistance, more support is arguably required. Especially, given the extent of the price declines and impact on turnover. Otherwise, many businesses will come under severe pressure in the weeks ahead, with many likely to cease trading. If this happens, it will take the sector much longer to recover.
The results of the December Survey of Agriculture show that numbers of breeding animals declined for all the main categories, albeit by generally small percentages. The table below summarises the figures;
Whilst dairy cow numbers were broadly stable year-on-year, there was a significant drop in the beef herd. This is perhaps not surprising given the poor beef prices seen since late 2018 and the ongoing uncertainty over Brexit. Sheep producers are also likely to have trimmed numbers in light of uncertainty over the future of the vital EU export trade. It is perhaps slightly surprising that fall is so modest. The pig breeding herd also showed a very slight decline. However, with rising productivity in the sector, the breeding herd is generating more pigs for slaughter which is illustrated in the ‘total pigs’ figure.
Reduced global demand and milk products held in distribution depots as a result of Covid 19 continues to put pressure on dried non-perishable dairy products. The GDT auction has again recorded consecutive declines at its events held during March, following falls at both events in February. The latest auction held on 17th March saw the average price index drop by 3.9% to $2,980. SMP fell by 8.1% and WMP by 4.2%.
The closure of pubs, restaurants, coffee shops etc in the UK and the guidance to stay at home will see a shift in demand from the food service sector to the retail sector. Those milk processors supplying the retail sector will have already seen an increase in demand, although this is likely to ease as ‘panic buying’ slows and managing supplies through this initial period is likely to be challenging. But those processors supplying the food service sector will have experienced a sudden drop in demand. It is often not possible to just divert to another sector, so many will be left with selling excess milk on the spot market and as the spring flush approaches, prices are likely to be falling.
Recent farmgate milk prices have been mixed throughout February and March, with only a few announcements for April:
Following a flying trade for both hoggs and cull ewes last week, the lamb market has suddenly crashed. Whether this will level and correct itself out over the coming days and weeks remains to be seen. On Monday 23rd March, the live weight daily GB Old Season Lamb (OSL) SQQ declined by nearly 73p on the week to 188.64p per kg, equating to about £30 per head. The cull ewe price, after record prices the week before, fell by almost £37 to average £71.70 per head. This was despite throughput declining sharply. The fast moving situation surrounding Coronarvirus is causing this volatility.
According to AHDB, the rumours that France was closing its borders to UK exports are not true. The border between the UK and France remains open to ‘commercial traffic’ (with some extra checks) and food products are on the list for priority entry through EU borders. Even so, demand for lamb from France (our biggest importer by far) is currently reported to be very low. Coronavirus restrictions in the country, which has seen open-air city markets close will have a large effect on demand from wholesalers. Those that have stockpiled are now using this, further restrictions could see more stockpiling but it is expected many will turn to cheaper products such as chicken and pork. Easter usually sees increased demand for lamb throughout Europe, but many have suspended their Easter marketing campaigns.
Domestically, demand for lamb is also expected to decline now pubs and restaurants have closed; less lamb is eaten in the home.
The beef situation does not currently seem quite as volatile, probably as it relies less on export demand and the price has been ‘struggling’ anyway compared to lamb. However, the finished beef price had been steadily rising in March and moving above last year’s levels, but latest reports show an easing of prices. Again, it is likely that demand for the cheaper cuts of beef and mince will be in strong and less so for the more expensive and roasting joints, as demand switches from restaurants to home cooking.
Livestock markets are currently still allowed to operate but under very strict guidelines; some have decided to close. The Livestock Auctioneers Association is keeping its Members informed of the requirements, more information can be found at https://www.laa.co.uk/news/
In a policy U-turn, Defra has announced that the culling of badgers to control bovine TB will be phased-out in England. Instead, a vaccination will be developed for cattle to tackle the disease in order to minimise the current slaughter of over 30,000 TB-infected cattle in England each year. Defra has outlined that badger culling was only meant to be carried out over a short period of time. In areas where the four-year cull cycle has ended, pilots for badger vaccinations are intended, with continued monitoring of the disease in badgers in the area.
While ultimately culling of badgers will be phased out, the Government will still introduce new areas in which culling of badgers can take place if there is the epidemiological evidence that the badger population in the area has a high incidence of the TB. Areas that have evidence that culling is required, but have not yet joined the culling programme ,will be encouraged to do so within the next few years, with a vision to phase-out badger culling by the late 2020’s.
Cattle vaccines are encouraged by the Government and it is hopeful that these will be available to farms within five years. Cattle vaccines will introduce a new method of tackling bovine TB. The Government’s target is for bovine TB to be eradicated in England by 2038. George Eustice, Defra Secretary said in the foreword of the government document published, that there is unlikely to be one single-way of achieving this; it will have to be done through various methods.
Defra recognises that cattle test needs to be sensitive enough so that infected animals are not missed out, while not being too sensitive to pick-up false positives. The current BCG vaccine available offers some protection against bovine TB but not indefinite protection. Those cattle which have been vaccinated often read positive on current tuberculin-based tests which, if BCG vaccines were used throughout the industry, would compromise the current surveillance on the disease. The Government has stated that it will move quickly to develop a test that will be able to differentiate between the disease and the vaccine.
As well as improving tests, the Government is committed to increasing the frequency of testing. This will enable earlier detection of the disease. Shropshire and Staffordshire will see six-monthly testing later this year, with the rest of HRAs to receive six-monthly testing from 2021.
At the latest GDT auction held on 18th February, the average price index fell by 2.9% to $3,176. This follows a decline of 4.7% at the event held earlier in the month. The falls have been attributed to the Coronavirus hitting demand from Chinese buyers and therefore resulting in downward pressure on prices. All products recorded a decline except for Cheddar. WMP and SMP made up nearly three quarters of the volume sold, both were down by 2.6%.
Domestically there is very little direction in the market; the fact that there have been announcements of milk price increases, at the same time as others are being cut, probably says it all! Notable price changes for March include:
Ahead of their Spring Seminars in March, Andersons have updated their Meadow Farm model. For the current year ending March 2020, there has been little change to the figures from those published in October. The livestock gross margin has reduced slightly due to the cattle price remaining depressed; finance has increased marginally on the back of a poor year but an increase in BPS, due to exchange rates, more than offsets these changes.
| Meadow Farm Model – source The Andersons Centre | ||||
| £/Ha Year – |
2017/18 (final) |
2018/19
(final) |
2019/20
(est.) |
2020/21 (f’cast) |
| Livestock Gross Margin | 717 | 654 | 617 | 682 |
| Arable Gross Margin | 647 | 768 | 662 | 590 |
| Total Gross Margin | 700 | 677 | 626 | 662 |
| Overheads | 496 | 504 | 511 | 504 |
| Rent & Finance | 84 | 82 | 85 | 84 |
| Drawings | 233 | 236 | 240 | 243 |
| Margin from Production | (112) | (145) | (210) | (169) |
| BPS & CSS | 250 | 250 | 251 | 251 |
| Business Surplus | 137 | 105 | 41 | 82 |
Looking ahead to 2020/21, the sheep price is forecast to remain strong and the finished cattle price is expected to see a modest improvement from its current low (see below). The crops gross margin is forecast to decline due to the wet weather impacting yields in particular. Margin from production remains negative and it takes the BPS and CSS to provide any profit. The BPS is budgeted to remain the same for 2020 as 2019.
Meadow Farm is typical of many livestock holdings in England, it is a notional 154 hectare (380 acre) beef and sheep farm in the Midlands. It consists of grassland, with wheat and barley for livestock feed. There are 60 spring-calving suckler cows with all progeny finished, a dairy bull beef enterprise and a 500 breeding ewe flock. The business is subsidy dependent, but with direct payments decreasing from 2021 it will need to adapt; maybe through restructuring to reduce its overheads, which are fundamentally too high, or perhaps by taking advantage of the new ELM scheme, or possibly a combination of both.
Latest information for prime cattle, show prices continue to make steady improvements at a time of year when values usually see a decline. Despite this, prices remain significantly below last year and the five year average. This time last year the GB all prime average deadweight cattle price was about 16.5p per kg more and pretty much on par with the five year average, but prices fell sharply from mid-February to mid-March.
Reports suggest export demand is currently supporting prices. Domestically supplies are tightening in certain parts of the UK which should also help to firm prices, this is especially so in England and Wales, where prime slaughter numbers were down by 1% in January to 107,000 head, compared with 2019. In Scotland numbers remained steady at 33,000 head, but Northern Ireland recorded an 8% year-on-year increase to 30,000 head. However heavier carcase weights (1.1%) more than compensated for reduced slaughter numbers, meaning UK beef and veal production in January was 78,800 tonnes, 0.7% (550 tonnes) more than the same month last year.
The lamb price continues to strengthen; the GB deadweight lamb SQQ is about 54p per kg more than at the same time last year. Tight supplies are expected to continue to support prices.
