IDF’s collaboration with international standard setting bodies, featuring Jamie Jonker, Chair (Chief Science Officer, National Milk Producers Federation); Raj Rajasekar, Vice Chair (Codex Alimentarius Commission); Paul Mennecier, Chair, (ISO Technical Committee on Food Products); and, Caroline Emond, Director General (International Dairy Federation). GB milk deliveriesfinally began to slow in September, after a strong summer of production,with estimated volumes for the month down by 1.1% year-on-year, or the equivalent of 13 million litres. This means that production is still ahead of 2022/23 in the year-to-date by 0.31%. Some of the drop off has been caused by disruption from milk haulier Lloyd Fraser going into administration mid-month. Anecdotal reports suggested that processors swiftly made other arrangements for collections and that a minimal amount was tipped. However, daily deliveries data indicate some disruption between 11 and 19 September. Future success of the industry will probably continue to depend on ensuring the consumer is properly informed about the world-class standards of health and welfare achieved by UK dairy farmers, and the importance of dairy as a natural component of a well-balanced diet. However, legislation is based on fixed dates, with no reference to efficiency of slurry use by bespoke crops and application procedures. Emissions The model is based on milking a little over 200 cows, calving year round on 130ha (of which 60ha are on a farm business tenancy). Proprietor labour with one full-time worker (plus casual/relief)

The higher milk yields seen in the last quarter of 2022 continued into February but are now softening. The full year for the 2022-23 milk season ended up by 0.2% on the previous year. However, poor spring weather and lower prices/squeezed farm margins have so far slowed production growth this year. January volumes are estimated as data was only available to 28 January at time of publication. Global milk production Milk from forage reduced for 2022-23 to reflect drought – less silage made and some already fed, higher concentrate use The continued strain on shoppers’ budgets is going to have the biggest impact on behaviours going forward, with the UK predicted to be in recession in 2023 and inflationary pressures are expected to continue.Our current projections for domestic demand expect retail sales of cheese, butter and yoghurt to fall by around 3% in 2023. Liquid milk sales are expected to revert to the long-term trend of a 1% annual decline (see full analysis below). Global production is not helping matters. Estimated global milk deliveries for May (the latest available data period) in our key production regions indicate production growth of 1.1% year-on-year. According to latest forecasts, however, estimated global milk production is expected to flatten off in 2023 to end the year at only 0.1% up. Friesian Farm, Andersons’ model dairy farm, is used to illustrate trends within the dairy sector for a typical farm. It is not designed to showcase best practice Agricultural inflation levels have eased a lot since earlier in the year but many input costs remain at high levels and the continued declines in milk prices are impacting on farmers decision making with little appetite to push yields. Farmgate milk prices reported by Defra have stabilised for August, settling at 36.2ppl, a far cry from a year ago when prices were 23.9% higher. Much will hinge on cow numbers. The rate of decline in the GB milking herd has been slowing according to BCMS data, only declining by 0.5% in April, or 8,900 head per annum. However, with pressures on margins we may see this accelerating in the Autumn. Unseasonably high grass growth is supporting cow numbers for now but farmers may need to act soon to take advantage of high cull cow prices. Current market signals are for beef prices to fall going forwards.

However, both will reduce at a slower rate than the long-term trend (see “Structural change in the UK dairy herd”); over the past 50 years, for example, 87% of dairy herds have disappeared. Conversely, milk production has increased in that time. The average yield a cow has more than doubled and the average herd size has increased fourfold. The situation is similar in the UK. Here, despite higher production volumes of cheese, exports increased year on year, tightening availability relative to the previous year. Butter availability is unchanged year on year, while milk powders saw a small increase due to the drop-off in both production and exports. An anticipated increase in the number of in-home lunch and breakfast occasions could provide opportunities for butter in sandwiches and on toast. However, the price gap between butter and margarine has increased and there is also heightened consumer awareness of the price of butter due to previous media coverage. We expect this to result in shoppers switching from butter and dairy spreads into margarine and alternatives. In the last recession, baking boomed as people sought out more affordable leisure activities. Whilst this could be replicated in 2023, butter is still seen as substitutable in baking occasions, and it will therefore need to fight to remain relevant. As a result, we expect butter retail volumes in 2023 to be down 3%, however this would still result in category volumes being 3% higher than in 2019. Yogurt: Before this, GB production had been running below year-ago figures since July 2021, although the year on year growth recorded in March through June was more to do with the sharp enforced reductions in the spring of 2020. An unfavourable milk-to-feed-price ratio, driven by rising feed costs and stagnant farmgate prices, was the key driver of lower yields in the autumn of 2021, although labour shortages will also have played a role. Margin pressures then worsened as global energy prices spiked, with the situation exacerbated by the outbreak of the war in Ukraine. The increase in milk prices through 2022 helped to offset the rising costs and supported improved yields in the final months of the year.Most of the growth looks set to occur in the first half of 2023, which is forecast to see an increase of 0.8% (1.1bn litres). This is driven by higher milk deliveries through the flush months in the northern hemisphere.

Global and domestic demand remain subdued. Latest Nielsen figures indicate volume falls in butter (-1.0%), cheese (-1.5%) and milk (-1.7%) although less steep than in previous months, whilst yogurt and cream have returned to modest growth (=0.1% and +0.7% respectively (source: Nielsen Homescan, 12 we 9 Sep 23). Looking further ahead, Andersons predicts the number of dairy farmers will continue to decline over the next decade, as will cow numbers.However, the value of dairy products has been weakening since last autumn, impacting on processors' ability to maintain the elevated milk prices. Added to that, it’s likely processors found it increasingly difficult to pass higher costs into consumer prices in the latter part of the year with demand showing signs of pressure. In 2022, the retail price index rose by 13%, with most of the inflation occurring in the second half of the year. Dairy product prices [3] rose by over 30% in the year, with fresh milk seeing the highest rate of inflation. Global milk productionin July fell into slight decline of -0.1% year on year. This still meant that the 12-month picture was up by 0.48% year-on-year but perhaps signs that as prices cool globally, the production tap is beginning to be turned down. So far this year we have seen a very dry February followed by a wet, cold spring that has limited firstly grass growth, and then access to pasture due to poaching. Despite this production was reasonable for March, ending up by 1.2% compared to March last year (although has since flattened off in April) but is now running -2% behind forecast with a later than average flush. There appears to be very little data on this, but the AHDB is progressing energy benchmarking. Grant aid via the Farm Equipment and Technology Fund in England should be available. Renewables

The combination of rising milk productionanda declining market suggests milk prices will come under pressure in the first half of 2023. With production costs expected to remain at elevated levels through the year, milk production could contract if milk prices fall to unprofitable levels. This could serve to slow, or stabilise, the drop in milk prices in the second half of 2023 if demand is not hit too hard. The timing of China’s return to the market will play a big role in when we can expect prices to stabilise. The industry’s emphasis should be on quality, not quantity, ensuring that demand is not exceeded, which should continue to maintain a strong retail price. Friesian Farm – summary figures (p/litre) According to the latest delivery data for the key milk producing regions [1], global production returned to growth in September 2022 after 12 consecutive months of declines. Recovery in production in European countries, combined with growth in the US, was at the centre of the turnaround as southern hemisphere regions continue to record year on year drops. There is a need to reassure consumers who may be turning to dairy alternatives about the health, environmental and welfare credentials of dairy. Organic production is already falling as the factors of falling demand, higher costs and lower prices are exaggerated and felt more keenly in the organic sector.

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Labour and working conditions will continue to be a key challenge, to which insufficient value is still attributed by the owners of many dairy businesses. High input costs and low milk prices ought to be a deterrent to milk production but for now, with forage being readily available, production has stayed afloat. Our latest forecast for the 2023/24 milk season estimates that GB milk production will be flat compared to last year, with production likely to begin to falling after August.