Proposed changes to AMPE and MCVE calculations

Monday, 13 July 2020

By Chris Gooderham

Every three years we undertake a review of our market indicators to ensure they remain relevant. The last change to the indicators was made in 2014, however, we have just carried out the latest review and are proposing a few changes to the way the indicators are calculated. Full details of the review can be found at the bottom of the page, and a brief summary of the key changes is given below.

The value in market indicators is in being able to identify trends. We recognise that amending the calculation can make trends more difficult to follow and therefore welcome feedback on the proposed changes. Please contact us at dairy.MI@ahdb.org.uk. Our aim is to launch the revised indicators from the end of August, with a number of years of historic calculations available using the 2020 assumptions. If you have any suggestions or concerns, please get these to us by 7 August so that they can be considered before the launch.

Milk quality

The indicators are calculated using assumptions on product yields; the volume of milk required to make a tonne of product. The greatest impact on product yields is the level of milk solids in the milk. As milk solids increase less milk is needed to make a tonne of product, meaning improved yield. In 2014, the average composition of milk was around 4% fat and 3.3% protein. Over the last three years, milk quality has improved, with the averages now sitting at around 4.1% and 3.35% respectively.

We are proposing to amend the product yields to take into account the higher average milk quality. The result in an increase in AMPE and MCVE of 0.50ppl and 0.76ppl respectively purely as a result of changing the assumption of milk quality. It is important to note that this does not mean that the same litre of milk is now worth more money than it was in 2014. What it shows is the extra value in delivering higher butterfat and protein in milk.

Costs

We are proposing to update the cost elements of the indicators to reflect the higher unit costs of labour and energy, compared with 2014.

The higher costs reduce AMPE and MCVE by 0.16ppl and 0.10ppl respectively.

Lactose powder

The 2014 revision to AMPE introduced the assumption of standardised skimmed milk powder (SMP) with the addition of lactose powder. At the time lactose powder prices were averaging around £1,000 per tonne and the inclusion rate was assumed to be 78kg per tonne of SMP.

Over the last few years, lactose powder prices have varied significantly from this fixed assumption. According to Global Dairy Trade (GDT), monthly lactose powder prices have ranged from £288 to £1,020 per tonne. We are proposing to use the GDT lactose powder prices each month to reflect the actual cost of buying in lactose to standardise SMP, rather than a fixed price. The inclusion rate is also increased to 85kg per tonne of SMP.

On average, over the last 3 years, this would have increased the value of AMPE by 0.22ppl.

Overall

The new indicators will be higher than the 2014 versions, mainly as a result of the assumed higher milk quality. On average over the last 3 years, AMPE-2020 is 0.56ppl higher than AMPE-2014, and MCVE-2020 is 0.66ppl higher than MCVE-2014.

Additional information

AMPE and MCVE July 2020 review

Chris Gooderham

Head of Market Specialists - Dairy & Livestock

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