Q3 processing cost increases applied to market indicators

Thursday, 23 December 2021

By Chris Gooderham

At the start of December we said we would amend our market indicators, AMPE and MCVE*, as soon as the Government published average energy costs paid by manufacturers for quarter 3. Those published figures are now available, and have been applied to our market indicators from December.

We normally revise the calculations for the indicators every three years, to maintain a level of consistency for comparison purposes. However, input costs are rising so rapidly that there is a need to reflect this in the indicators. We will continue to review manufacturing costs every quarter while we are in this period of high inflation.

Both indicators include a range of costs for processing, including energy, labour, raw materials, maintenance, storage and depreciation.  After the latest adjustments, AMPE costs have increased by 0.47ppl, while MCVE costs have risen by 0.51ppl. These changes will reduce the values of the market indicators AMPE and MCVE by 0.47ppl and 0.51ppl respectively.

It is important to note that the figures only reflect cost inflation up to September 2021. We know that energy costs, in particular, have continued to rise since this date. We will capture these in the next update in March 2022. A breakdown of the latest costs are given below:

The new costs include changes in:

  • Energy costs based on the movement in the average prices of gas and electricity purchased by the manufacturing industry in GB as quoted by BEIS, up to Q3 2021.
  • Labour costs based on the movement in the unit labour cost for the whole economy as quoted by ONS – these currently only go up to Q2 2021.
  • Other costs based on the movement in inflation (CPI) from the 2020 update to Q3 2021

For further changes and to see how costs impact your own business, we offer an online spreadsheet that allows you to enter bespoke costs and milk quality into the calculations. This will then calculate unique indicators based on your own circumstances.

Notes

* AMPE is the Actual Milk Price Equivalent for turning milk into butter and skimmed milk powder. MCVE is the Milk to Cheese Value Equivalent and gives an indication of the value of milk if it is turned into mild cheddar, whey powder and whey butter.


Image of staff member Chris Gooderham

Chris Gooderham

Head of Market Specialists - Dairy & Livestock

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