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Q4 processing cost increases calculated for dairy market indicators
Monday, 4 April 2022
Last year, we committed to amending our market indicators, AMPE and MCVE[i], with quarterly adjustments to costs during this period of high inflation. With the release of government data on average energy costs for Q4 2021, we have been able to update the cost elements of our market indicators accordingly. These will be implemented from April.
Both indicators include a range of processing costs, including energy, labour, raw materials, maintenance, storage and depreciation. After the latest adjustments, AMPE costs have increased by 1.28ppl, while MCVE costs have risen by 1.27ppl. This will in turn reduce the values of AMPE and MCVE by the same amounts. These cost increases came primarily from the sharp increase in energy prices (gas and electricity) seen in Q4 2021, and the cost of drying powders has been particularly affected.
It is important to note that these figures only reflect cost inflation up to December 2021. Since then, there have been indications that energy prices have passed their peak – but they remain at very high levels. We will capture these in the next update in June 2022. A breakdown of the latest costs is 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 Q4 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 Q3 2021.
- Other costs based on the movement in inflation (CPI) from the 2020 update to Q4 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.
Minor amends were made to this article on 7 April 2022
[i] 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.
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