By Debbie James

Many Welsh dairy farms are failing to cover their production costs, with the costs on some units higher than they have ever received for their milk, a new report shows.

The average cost of producing a litre of milk in Wales in 2016-17 was just under 28p per litre (ppl) but the worst performing businesses spent 38ppl.

The AHDB report shows that the profitability gap between the average producer in the top and bottom performing businesses was nearly 17ppl in 2016-17, equivalent to around £125,000 of the value of the milk those farms produced.

The report was compiled from data collected from 75 per cent of all dairy farms during a Welsh government-funded benchmarking initiative – £3.2 million of European conditional aid was made available to farmers for benchmarking and milk recording.

The survey indicated that the average milk price for those farms was 22.7ppl, almost six per cent lower than the 23.87ppl quoted by the Farm Business Survey for England.

The top performing businesses, in terms of dairy profit per litre of milk, are more likely to have aligned milk contracts.

The highest direct cost for all groups is purchased feed and it is the least profitable farmers who spend the most on feed.

Other direct dairy costs, such as veterinary, breeding, foot care, bedding and dairy chemicals, are far better controlled in the top performing herds, around 1.0ppl less than the highest spending category, according to the data.

Those that run extreme systems – either grazing for over nine months or not at all – are making more money per litre than those in between.

The feed cost per cow and per litre falls sharply from 10ppl to 4.5ppl as the number of grazing days increases from zero to over 274.

But despite challenging conditions, nearly half of dairy farmers surveyed suggested that they planned to increase production over the next five years.

These expansion plans are largely being driven by younger farmers, whereas the businesses that are planning to cut cow number or leave dairy farming altogether are older farmers.

Rural affairs secretary Lesley Griffiths said that although the report showed that profitable dairy farming was possible, she expressed concern about the high cost of production on some farms.

“That is why I am in the process of tailoring the support we offer these farms to help them re-evaluate the structure of their business and use their benchmarking report to see where improvements can be made.”