Past trends and future challenges for a sustainable ...

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Past trends and future challenges for a sustainable UK dairy industry AC Boulton1, J Rushton2, CM Wathes3, DC Wathes4 Royal Veterinary College Abstract Post-war policies encouraged an increased UK milk supply but more recently the dairy industry has declined with respect to numbers of farmers, cows and total production. There has been increased efficiency in larger units through higher yields per cow and improved use of fixed costs. Fertility has, however, declined and, together with a high endemic disease incidence, has resulted in high culling rates. Costs of feed, fuel and fertilizer have risen and farmers are now also required to meet stringent environmental standards. The retail industry maintains control over both retail and producer prices with profits failing to filter down the supply chain: many producers operate at a loss. Future efficiency savings must ensure high animal welfare standards and provide a reasonable income for dairy farmers. This requires active policies on genetic selection which include health as well as production traits, farm assurance schemes that reward good management and market policies that curb the dominance in the dairy supply chain. Key Words: milk production, farmgate prices, genetic index, efficiency, welfare

Introduction This review examines major trends in the UK dairy industry since the Second World War. It then considers the future challenges of “sustainable intensification” (Foresight Report, 2011), paying particular attention to the dairy farmer and his cow. We argue that while sustainable intensification is a worthy goal in light of the impending perfect storm in global agriculture, this mantra should only be adopted if it is done “with compassion”, not just for the cow but also the herdsman and other workers. The agricultural goal following the Second World War was a secure food supply, which was supported by major investments in research, education and farm level support. For British livestock this was met over the following decades by adopting methods and practices that some now question. Consumers have undoubtedly benefitted from cheap food; a typical household currently spends about 10% of its disposable income on food, about one third of that spent by the previous generation. With hindsight, it is clear that both farm animals and the environment have paid the price of British agricultural policy since 1945. Farmers are increasingly being held accountable for the environmental pollution which they cause and bear legal responsibility for the welfare of animals in their care. Both of these topics are of increasing concern to the British public.

Supply-side economics Various post-war Agricultural Acts secured guaranteed prices and markets for the major agricultural products. As a result, farm incomes and capital investment in the agricultural industry rose, while the proportion of disposable

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Animal Health Economics PhD Student, 2 Senior Lecturer in Animal Health Economics, 3 Professor of Animal Welfare, 4 Professor of Veterinary Reproduction: Royal Veterinary College, Hawkshead Lane, North Mymms, Hatfield, Hertfordshire, AL9 7TA

Royal Agricultural Society of England

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household income spent on food fell steadily. The European Economic Community‟s (EEC) Common Agricultural Policy (CAP) was introduced to provide stability to agricultural markets, secure food supply chains and encourage efficient production. As such, it was primarily a supply-side measure whose main beneficiaries were farmers rather than consumers. In this sense, the government sided with the supplier; the taxpayer either unwittingly or unknowingly accepted that the production of food should be afforded a special place in public expenditure. Ultimately, price support by the EEC and guaranteed collection and marketing by the Milk Marketing Board (MMB) unbalanced the market and led to overproduction. In order to eliminate the surplus (i.e., the milk lake and butter mountain), a cap on production was agreed and milk quotas were introduced in 1984, initially for a five year period based on an individual‟s 1981 production plus 1.0% (Colman, 2000). UK milk production dropped by 14.5% in 1983/84 but then remained consistently over quota until 2000, when a continuing trend of below quota production began. This downward trend was associated with fewer dairy farms and more non-producing quota holders (Colman, 2000). In 2008, UK milk supply was at its lowest since 1974 (DairyCo, 2009a). The contraction of the UK dairy industry is similar in other EU member states with only 1 in 7 dairy farmers who were operating in EU-10 countries in 1984 still in milk production today (European Commission, 2010). Despite this fall, the UK remains the ninth largest producer of liquid milk in the world and the third largest in the EU (DairyCo, 2010). Over half of the milk produced in the UK is consumed as liquid milk with the remainder being used in value-added products such as cheese and yoghurt. In the 1980s, 80% of liquid milk consumption was via door-step deliveries compared to today with 90% of milk now being sold through supermarkets. The de-regulation of the dairy industry, which began in 1994 with the break-up of the MMB, has transferred market power to the retailers. Farmgate prices have fallen despite the rising retail price of milk. In 2004, UK dairy farmers were paid the lowest farmgate price in the EU-15 even after accounting for exchange rates (Dean, 2006). Between 1988 and 2009, farmgate prices fluctuated between 14.6 pence per litre and 23.8 ppl (Figure 1). Colman and Harvey (2004) estimated that 60% of dairy farms and 40% of output failed to cover full costs in 2002/03. For many farmers, the market price is now less than the cost of production, on average 3.16 ppl lower between April 2010 and March 2011 (Spedding, 2011). Figure 1 Changes in nominal and real farmgate prices with 1994 as base year inflation rate

Source: Dairy Co (2009a) Rising costs of feed, fertilizer, bedding and fuel have lowered margins for dairy farmers. For example, the prices of wheat and soya meal increased by 34% and 83% respectively between 2004 and 2009 with bags of blended fertilizer doubling in price during the same period (Dairy Co, 2010). This upwards pressure is unlikely to change in the future with increasing competition from emerging economies such as India and China. High costs have also been incurred by strict environmental regulations, with many UK farmers claiming that these fail to provide a so-called level playing field vis-à-vis their international competitors. Calculations of profitability show that gross margins fell in 2009/10 compared with the previous year, whether expressed as gross margin per cow (down £117 per cow, -12%), milk price (down from 13.96 to 11.97ppl) or average size farm (down from £120k to £115k) (McHoul et al., 2011).


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Supply-side demographics The UK dairy cow population increased post-war, peaking at 3.3 million in 1983. Numbers then declined steadily following the introduction of quota in 1984 to a national herd size of 1.8 million in 2010, a reduction of 55% in 25 years. Herd size has more than doubled since 1978 with more than 90% of cows being maintained in herd sizes >50 and a current national average of 113. Although the average milk yield per cow has increased steadily over the same period to around 7,100 litres, this has not been sufficient to compensate for declining numbers of animals with national milk production falling from 18 million to 13 million tonnes. The contribution of agriculture to the UK‟s gross domestic product (GDP) has mirrored labour market trends, declining from 2.3% in 1979 to 0.6% in 2009 as the service-sector has expanded. The number of dairy farmers in England and Wales has fallen to about 11,000, an average reduction of 4.8% per year since 1978. Increased mechanisation and falling farm incomes have also contributed to a reduction in the number of agricultural workers employed in the dairy industry. The last decade saw a 12% decrease in the number of workers on agricultural holdings alongside an ageing farmer population and greater presence of immigrant workers.

Consequences of post war policy for dairy cows Genetics Prior to the 1980‟s the British Friesian was the dominant breed producing around 5,700 kg milk per 305-day lactation. By 2009, approximately 90% of the national herd comprised cows with a mix of Holstein and Friesian breeds with the majority (87%) attributed to the North American Holstein (Winters et al., 2010). This breed substitution mirrored the trend in average milk yield, which has risen from 4,790 to 7,084 litres per cow in 1979 and 2009, respectively (Figure 2). Targeted application of genetics accounts for around 50% of the improvement in lactation yield (Boyns, 2009) with the remainder due to improved feeding systems, management efficiency and artificial inputs, such as fertilizer. Figure 2

UK dairy cow breed proportions and average milk yield (1993 to 2009)

Source: Winters et al., (2010) The emphasis in dairy cattle genetic selection over the last several decades has been production traits at the expense of functional traits including fertility, longevity and conformation (Lancaster, 2010). There is, however, an antagonistic relationship between production and fertility, so calving intervals and non-return rates have risen in parallel with greater milk production per cow (Berglund, 2008). These adverse consequences of selection for production traits are not limited to Holsteins but are evident in all the main UK dairy breeds. Intensive use of North American Holstein genetics is also increasing in-breeding problems. This has arisen through greater use of artificial insemination, together with worldwide importation of semen from a small number of select sires (Beever, 2006). In-breeding levels in the UK Holstein population were around 3% in 2004 with the current increase in in-breeding coefficient estimated at 0.17% per year. In 1990 approximately 50% of females were inbred to some degree compared to 96% of females in 2002 (Kearney et al., 2004). This has reduced genetic variability in the population and is likely to be a contributing factor to the reduction in fertility.


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Culling and longevity The number of lactations in the Holstein-Friesian population has averaged around 3.0-3.5 for at least a decade compared with 4.8 in 1975 (Beever, 2006, Dairy Co, 2009). The average culling rate in the UK is currently 22% due to infertility, poor health and low milk production. Ill health is often the underlying cause of poor reproduction and performance, together with reduced oestrous detection rates and prolonged periods of negative energy balance associated with high yields in early lactation (Orpin and Esslemont, 2010; Brickell and Wathes, 2011; Figure 3). Figure 3

Reasons for culling in UK dairy herds.

Source: DairyCo (2009a) First service conception rates are declining by approximately 1% per year (Huxley, 2009), while average calving intervals have risen steadily from 396 days in 1998 to 426 days in 2009. Quoted culling rates only include animals which reach first calving and start milk production. In addition, 8% of calves born on UK dairy farms are typically either stillborn or die within 24 hours while a further 14% of heifers die or are culled between birth and first calving (Brickell and Wathes 2011). Beef bulls may be used on replacement heifers and sub-fertile cows to provide an easier first calving and higher conception rates. Together with high culling rates and poor fertility in the milking herd, the result is fewer available replacements (Dairy Co, 2009a). Whilst these can currently be obtained when others farmers sell up, availability may become an issue in the future and the introduction of cows to herds may compromise biosecurity. Health Problems Ill health in dairy cows can be broadly attributed to production, endemic or exotic disease(s). The main production disease is mastitis with an incidence of 47-65 cases per 100 cows per annum (DairyCo, 2009b). In 1971, the prevalence of mastitis - estimated using the bulk milk somatic cell count (SCC) - was approximately 580,000 cells per ml. SCC dropped markedly to around 180,000 in 1998, since when it has remained roughly constant. This sustained decrease was driven by the Milk Hygiene Directive (EC 92/46, 1991) whereby an upper limit on SCC of 400,000 was imposed on milk destined for human consumption. Mastitis reduces average lactation yield by 2.5% for every 100,000 increase in SCC and a SCC >200,000 also adversely affects milk protein production. Recent studies involving locomotion scoring have put the prevalence of lameness at around 34% (Huxley, 2009). Feet and leg problems are more common in high yielding cows, contributing to greater culling rates. Lameness is clearly poor welfare and is associated with decreased fertility as animals are reluctant to stand to be mounted. Furthermore, changed feeding behaviour in lame cows reduces energy intake with milk yields of lame cows being on average 357 kg less per 305 day lactation (Green et al., 2002). Endemic infectious diseases prevalent in the UK herd include Johne‟s disease, bovine viral diarrhoea, leptospirosis and Mycobacterium bovis (bovine TB). These have both direct treatment costs and indirect costs through production losses. Bovine TB was virtually eliminated in the UK in the 1950/60s but has seen a recent resurgence. The number of cattle slaughtered due to TB in 2009 was approximately 36,000 of which 55% were dairy cattle, a five-fold increase since 1999 (DairyCo, 2009a). Some of the increase in culling could be explained by more testing imposed by Defra for disease control rather than an increased incidence per se. Testing also restricts movement and sales whereby farmers are unable to sell animals at the most profitable point in the production cycle, while unwanted ani-


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mals cannot be disposed of easily, putting strain on infrastructure and labour. Two major epidemics over the last thirty years have led to compulsory culling of large numbers of cattle. Bovine spongiform encephalopathy (BSE) was first recognised in the UK cattle population in 1985-86 with over 146,000 dairy cases subsequently identified. Compulsory slaughter of cattle suspected of having BSE was introduced in 1988 and in 1996 the „Over Thirty Months Scheme‟ (OTMS) was introduced, resulting in the removal of over 2.5 million animals. Additional effort to identify cohorts of infected animals removed a further 73,000 cows from the national herd (Hillerton, 1998). The foot-and-mouth (FMD) outbreak in 2001 likewise initiated a major programme of slaughtering, following guidelines laid out in the Animal Health Act 1981 and the Foot and Mouth Disease Order 1983 (SI 1983/1950) (National Audit Office, 2002). Of the 1,849 premises found to be infected with FMD, 616 stocked dairy cattle and 0.7 million cattle were culled over 32 weeks (Gibbens et al., 2001). Welfare The expectation today is that all farm livestock should have “a life worth living – from their point of view”. The Farm Animal Welfare Council (FAWC) has concluded recently that the modern dairy cow‟s welfare is no better or worse than it was when last appraised in 1997. The dairy farmer has to comply with UK legislation regarding the cow‟s welfare and FAWC‟s review of the latest evidence shows that the welfare of UK cows is satisfactory (FAWC, 2009). Welfare would, however, be better still if health status was improved. This contention does not relate directly to the size or type of the unit as there are examples of poor welfare amongst animals farmed extensively as well as in the traditional intensive „targets‟. The issue is how well each individual cow is cared for, requiring excellent management whatever the system.

Future trends for the farmer and the cow A cheap food policy is likely to remain a government aim as any substantial increases in household expenditure on food would be unpopular with the UK public. The current concentration in market power has focused minds largely on cost reduction while the gaps in supply as national milk production levels have fallen have been largely filled by imports. These may be cheaper but can come from production systems that do not have equivalence in terms of welfare and environmental impact. There are important lessons to be learnt from the pig sector in terms of applying welfare standard in Great Britain, by allowing imports with no equivalence. Government policy must in future balance opposing demands to ensure that a viable dairy industry remains which manages cows with respect, limits environmental impact yet still provides the consumer with cheap produce. There are encouraging signs that improvements in health and welfare of the dairy cow are achievable through genetic selection. The £PIN or profit index considers only milk volume, fat and protein content. Its use successfully increased average milk yields but took no account of other aspects of the cow so £PLI (profitable lifetime index) was introduced to reverse the negative trend in fertility. The production aspect was reduced to 44% and the index expanded to include information derived from other key daughter attributes, i.e., lifespan, fertility, somatic cell count, udder conformation and locomotion. Future aspirations are to introduce disease resistance, for example against mastitis, Johne‟s and TB, although this is dependent on recording systems which reliably capture phenotypic data for these traits. At the same time, developments in genotyping mean that genomic selection can be used to estimate the future performance of a bull. This new approach takes account of small genetic variations across the entire genome and relates them to the probability that the offspring of a particular sire will inherit traits of interest. The test can be performed on a tissue sample collected at birth, so reducing the generation interval and increasing the speed and reliability of selection for beneficial traits. (DairyCo, 2011)

Conclusions The UK dairy industry is currently struggling. Dairy farmers who wish to remain in business will need to increase efficiency to remain profitable. In the recent past this has been achieved through squeezing fixed costs and has fuelled the drive towards fewer, larger units at the expense of smaller, individual holdings. Larger units are better able to take advantage of economies of scale, exploit new technologies and have greater bargaining power with buyers. As a result, the efficiency of production, measured as output per man and cow, may well continue to rise, but if these trends are too extreme then they will threaten the future sustainability of the industry. Milk prices have been driven to historically low levels and farmers are responding to these pressures. For example, the Scottish NFU is proposing new milk pricing systems. Such initiatives are needed if farmers are to secure an acceptable profit, but this can only succeed with greater farmer co-ordination and stronger Government support. With milk quotas set to be phased out in 2015 and increasing liberalisation of the agricultural industry, recognising the need for better governance of the industry will be critical if the UK is to continue to compete effectively in a world


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market. The aims of that governance should be to provide a reasonable living for all in the industry, high quality and reasonably priced dairy products, good animal welfare and a well managed environment. Achieving these goals will need the involvement in governance of representatives across the UK dairy chain co-ordinated by the public sector. Farmers need encouragement to invest in a future UK dairy industry which provides them with an adequate return on investment and offers the cows a life worth living.

Acknowledgements We are grateful to DairyCo and BBSRC for their support of Alana Boulton via an Industrial CASE studentship award.

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