Shift in pricing focus raises UK solids production

Friday, 20 December 2019

By Patty Clayton

Milk production volumes in the UK have been growing at a rate of around 1% per year over the last five years. Alongside this, we have also seen a rise in the production of milk solids1.

In the five years starting 2014/15, milk solids production has risen by around 5%, an increase of 5,500 tonnes, equating to an annual growth rate of 1.2%. This year has seen further increases.

 

So what is behind the steady growth in butterfat and protein content of milk in the UK?

A key factor is the increase in milk paid on the basis of constituents rather than volumes, providing farmers with a clear price incentive to boost the solids contents of their milk.

This is partly because a smaller proportion of total deliveries are now destined for the liquid market, where milk volume is the key driver of price. Historically, just over 50% of the milk went to the manufacture of liquid milk, declining to 47% by 2018.

This mean a higher proportion of milk is now being made into other products, where milk solids are critical to processing yields. However, we have also seen some of the larger milk buyers moving to a pricing model based on constituents. We estimate that as much as 60% of milk production is now paid for on a constituents basis, compared to only 42% in 2015.

Typically, prices on liquid contracts are largely determined by a base price, while those on cheese or manufacturing contracts are more influenced by the constituents. The relative weightings of these pricing components have also shifted over time. The value of constituents now account for 79% of the final price on manufacturing contracts on average, compared to 73% in 2015.

 

1 Butterfat and protein

Patty Clayton

Lead Analyst - Dairy

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