Get help from the best in academic writing.

Macroeconomic Policy And Construction Industry In United Kingdom Economics Essay

INTRODUCTION: The economy can be defined as the circular flow of goods and services from producers to consumers, and the equivalent flow of labour and capital into the production development. Also can be view as the flow of money for the services supplied (Malcolm 2005). Furthermore, ‘economy is monetary activities related to the production of goods and services and measured by currency spent to purchase these goods or services. In the current US economy or most modern economies the total moneys spent is not limited to just goods or services. For example the money made in the stock market is neither a product nor a service but it is part of the modern economy. Economy can also mean saving money by spending less than you would normally spend to provide a particular service or a product’ (Garrett, 2010)
Macroeconomic policy deals with policy maker to manipulate the behaviour of broad economic aggregates to improve the performance of the economy. Furthermore, ‘the aim of macroeconomic policy is to advanced industrial countries are generally accepted to the attainment of high and steady employment, steady general price level , increasing level of real income(example economic growth), balance of payments equilibrium and certain distributional aims’.(Howard and John ,1993)
The construction Industry is big, complex and diverse and covers a wide range of business interests, united by their common usage and development of land. The construction industry involved clients such as commercial property developers and house builders who decide what should be built and the profitable areas. It involves the designer decide detail on what to built and materials. Also it involves component materials such as manufacture materials, and the contractors. It creates wealth and employment the economy. (Anon. 1996).
Furthermore, this paper shows economic trends and also shows current macro-economic policy. More so, the impact that economic factor has on the construction in industry and also show an understanding of the ways in which macro-economic policies may affect the construction industry. Finally, this papers shows relationship of the economy, macro-economic policy and construction industry in the environment.
THE UNITED KINGDOM ECONOMY: The United Kingdom is prosperous country with high standard of living in the world. During nineteenth century the country experienced a tremendous growth in industrialization till early twentieth century. That was more of a service economy and employment in the industry continued to decline while employees working in health, education, leisure and finance continued to increase. (Malcolm, 2005).The UK economy for a long time is facing unbalanced and unsustainable public spending and rising in level of public debt. This (fig 1) is the latest forecast of the UK economy according to (Robert prechter 2010)
. The (fig 1) show that strong economic recovery start to improve from 2010 .so, the Bank of England should keep on interest rate at 0.5% for many years beyond stabilizing the economy .From above trend growth 2.8%by the end of 2010
The officer for National statistics enacted economic statistics that measure the UK economy in different methods.
1 The UK economic accounts that make available general view of the economy 1993
2 The European system of account 1995
As the UK economy grows over time, its components will certainly transform in size and structure. For the past 40 years there is constant decline in the importance of the UK manufacturing area, but a similarly stark rise in services. Besides, the UK economy is made up of up five components:
2 The households
3 The government
4 The banking sector
5 The eternal sector
THE FIRMS: This is an important source of growth and income architects in the economy .They provide the economy with jobs, wages and also provide good and services.
THE HOUSEHOLDS: From the employment wages paid by firms will enable them purchase goods and services. By spending the wages, the household will provide the firms with what up to date demand for product and services look like.
THE GOVERNMENT: They provide goods and services to the economy too and use them. The government provide employment like teacher; police and civil servant to enable them provide service to economy. The enact legislation that guide the economy by implement policies for economic operation. The provide school, health centres, road etc, that create goods and services.
THE BANKING SECTOR: This is very important to the economy because the banking industry provide services for transaction money for the government ,household and firms to enable them invest , meet up demand and engage in good and services. By lending to the government, household, and firms they make their profits. For example, from new spending review the British Bankers’ association and the six major banks broadcasted a package industry led measures to advanced access funds to firms that includes a £1.5 billion Business Growth Fund to enable set up and rise small business.
THE EXTERNAL SECTOR: This involves with importation and exportation in the UK economy. This is determined through the balance of payments. Exportation leads to positive effect to the UK economy while importation leads to negative effect to the UK economy because it involves movement of money out the country.
Finally, all these sectors lead to flow of money and products among them .from gaining and analyzing correct information from these component parts that the health of the economy and forecasts for the future of the UK economy can be made in global market.
MACROECONOMIC POLICY IN UNITED KINDOM Macroeconomic policies enable the UK government to achieve certain and develop the performance of the economy. Also, to improve the well -being of citizen who live and work in their economy. It deals with issues, policies and objectives that have an effect on the entire economy. The economic growth, the unemployment rate, inflation rate, balance of payment and exchange rates; these are all UK aggregates and therefore macro issues.
In order to attain this goal, government has implemented main objective these macroeconomic objectives:
1: Economic growth
2: inflation
3: Unemployment
4: Balance payment
5: Exchange rates
ECONOMIC GROWTH: this means the increase in general level goods and services produced in the UK economy. This is measured by the percentage rate of increase of real gross domestic product real (GDP).Real GDP means with effect of inflation is take away. The GDP is made of two main sources: add to in the utilisation of existing recourses and add to actual productive potential. Economic growth leads to alleviate unemployment and developing spare capacity. It improved the invention and introduction of new machinery for high labour productivity. The positive economic growth is profitable to construction industry in so ways, for example; it creates more employment and manufacturing building. The demand for new building will give rise to better economy. Furthermore, it helps the five components of the UK economy. Economic growth in UK is measured in conditions of rate of change of real GDP.In UK real GDP is when the effect inflation is eradicated in the economy.UK growth figures are published quarterly. This figure 1 recent shows UK quarter GDP.
Real GDP quarterly growth
Real GDP quarterly growth
The (fig1) shows that the UK economy is recovering from recession. The real GDP increased for two consecutive quarters. From above it increased by 1.7 % in second quarter of 2010 higher than the second quarter of 2009.Due to government consumption expenditure rose to by 1.0% and is 1.9% higher than the second quarter of 2009.Construction industry rose by 9.5% b compared with the previous.
INFLATION: inflation refers to process of continually rising prices of goods and services in the economy over a period of time. It is calculated by annual rate of the Retail Price Index.(RPI) known as rate of inflation. When inflation rate zero, it enable the prices of goods and services to be stable. Both the components of the economy and the construction industry prefer inflation rate down to a low percentage. High inflation lead to goods and services to more expensive, may affect the demand from household and the construction industry will decline. These decreases in demand have negative effect firms and the banking sector .High inflation leads to fewer exports in international market, which affect the balance of payment of the economy.
Inflation CPI inflation 3.1%, RPI 4.6% This is a graph showing Annual inflation rates – 12 month percentage change
Annual inflation rates – 12 month percentage change
This shows the consumer price index (CPI) 3.1% in September, unchanged from August, RIP 4.6%.there is upward and downward pressures on CPI annual inflation from august to September. The downward came from transportation and upward came from clothing, footwear and food where the economy experiences the largest upward. Based on international measure of inflation, CPI show that the UK inflation rate in august was above estimated level for European Union. The UK rate of 3.1% percent while EU’s as whole was 2.0%.
UNEMPLOYMENT: Means in UK government an individual that is unemployed but currently claiming unemployment related benefit. Also an individual that is capable and willing to accept an appropriate job. Low unemployment rate is obviously positive the economy. Furthermore, unemployed do not produce goods and services and lead to low demand of goods and services (deflation).The firms will be engulf with less profit that lead to low production. The government send more on benefit and gain fewer taxes from the public. The UK government defined two ways: the inactive and active population working age. Active are the population working while inactive are students, retire people.
Employment Rate rises to 70.7 per cent These are graphs showing the working age employment rate and the unemployment rate
This (fig 3) shows unemployment rate at 7.7% for June – august 2010.This is down 0.1 on the quarter while the employment rate for aged 16 to 64 was 70.7% up 0.2 on the quarter.
THE BALANCE OF PAYMENTS: This refers to the UK trading relationship with other countries of world. According to (Malcolm 2005) ‘the balance of payment is principally cash flow or sources and utilize of funds statement which shows all transaction that lead either to inflow of money (shown as a credit)or to an outflow (shown as a debit).’ Also is refers as records of all financial transaction that are made between consumers, firms and the UK government across the world. It helps to show how much spent by the UK consumers and firms on imported goods and services. Furthermore show how UK firms are successful in exportation with other countries and global market. This is essential method to determine relative performance of UK economy in the global market. The balance of payment is in two accounts: capital account and current account. Current account measures the trade in goods and services between the UK market and global markets. Capital account measures the flow of money and investment with the UK economy and other countries.
Balance of Payments Current account deficit reduced 2010 Q2 This is a graph showing quarterly current account balance
UK current account balance: seasonally adjusted
This (fig 4) showed that the second quarter balance is equivalent to 2.0% of GDP, compared to -3.1% per cent of GDP in the previous quarter. However, the income surplus increased by £6.5 billion to £9.3 billion whiles the deficit on current transfer reduced by £0.1 billion to £4.1 billion. This shows that the UK economy is under heavy importation rate.
THE EXCHANGE RATE: This refers to the UK value of pound against other currencies in the world. Efficiency Stability in fluctuations of pound’s value to enable the five component of UK economy functions well. Even the construction industry that based on imported materials. Furthermore, if the value pound drops will lead low exportation and high importation, this may affect the balance of payments.
Finally, the government control the five economic objectives through the use policy instruments like: Fiscal policy and monetary policy
FISCAL POLICY: this refers to government to use many measure to control expenditure and revenue to regulate the level economic performance. The government can increase demand through its own purchases like infrastructures. This has positive effect to firms who make the goods and services available for government. The construction industry as well benefits through execution of the projects and it create employment. Through low taxation to individual and firms, may lead to increase in demand and firms may expand more to create employment and healthy economy. The government can use Budgets to increase or decrease economic activity. Budget is made of three categories:
1: Balanced budget
2: Surplus budget
3 Deficits budget
Balanced budget is used when government want to manipulate the economy. By spending exactly equal to the revenue rose from taxation.
Surplus budget refers to deflationary. The government want to reduce the level of economic performance. Through less spending from the government, may lead to lower level of aggregate of demand.
Deficits budget refers to when government spending more than it is generating through taxes. Lead to increase in level of aggregate demand and increase in economic activity. This system is known as inflationary budget. The government borrow money for extra spending is known as public sector net borrowing (PSNB).while a surplus budget the government can afford to pay back the money it has borrowed is known as public sector debt repayment.(PSDR).From the new UK spending review, the government want to cut down the deficit and hold up the macroeconomic stability. Finally reducing the deficit will lead to continued economic growth.
MONETARY POLICY: This is very essential way to regulate the economy and is used in conjunction with fiscal policy. Monetary policy seeks to influence the level of aggregate demand by altering the supply or the price of money. Monetary policy instruments used are:
1: Money supply control
2: Credit or hire purchase control
3: Interest rates
The bank’s monetary policy aim is to restore price stability (low inflation) and support the government’s economic objectives like economic growth and employment rate. The remit recognises the function of price stability in achieving economic stability and in providing the right conditions for sustainable growth in output and employment.
CONSTRUCTION INDUSTRY: The UK construction is made the building and civil engineering work. The construction sector is large, complex and covers a wide range of business interest and activities that has do with usage and development of land. The construction industry is very essential for the UK economy and it account for 10 per cent of UK’S GDP and employs 1.5 million individual. The UK government commitment to construction project within healthcare and education has assisted to strengthen growth in the economy over the past few years. For example, the construction industry at the end of 2008 employed over two million people and accounted for 6 per cent of national economic output of £123 .6 billion. Due the current recession, there is decline in the construction sector in the economy. Besides, the construction sector is the main driver of growth in other sectors due to heavy supply of materials and the employment demand. The construction industry depends small on importation, which leads to investment generation of economic activity within the UK. Also it leads to investment rather than consumption, which lead to important long-term economic and social benefits to the UK. The government use construction investment helps to stabilize the economy that leads to industry’s key point to national development policy. The construction sector is labour intensive than many other industries with regards to manufacturing. Finally UK’s construction industry is the fastest growing sector in the economy according to office of national statistics.
CONCULSION: From above, the economy, macroeconomic policy and construction sector have significant impact in development of the country. They all related to each order for balance and sustainable economy. For the UK economy to be stable and constant in growth, the UK government need to insure that the economy, macroeconomic policy and construction sector is efficient and mutual co-operation among them. It makes sense for the government to use these measures to control inflation and interest rate. According to IMF and OECD, recently UK government spends £43 billion on debit interest, which may delay the recovery progress. Furthermore, there need for efficiency between the relationship of fiscal policy and the business cycle. According to report from the office for national statistics, construction sector shining since last three mouth. So the government should permanent invest on construction projects that are vital to the long term future of the UK economy. The construction industry remains the most concerned sector because the private sector and commercial output depend on them. The demand for construction is linked to increase demand for other economy sectors. Also there is need for well-organized financial sector the economy. The government should go ahead the recent efforts to recapitalize the banking sector to enable them keep up credit levels the economic recovery. There is high need for credible and consistent polices alleviate downside risk and build up market confidence such as, setting monetary and fiscal policies fixed with a concrete commitment to the existing policy aims of price stability and fiscal sustainability. Finally the government’s well-built and reliable multiyear fiscal deficit reduction plan is important to ensure debt sustainability.

Milk And Dairy Industry Uk Economics Essay

The area of Great Britain and Northern Ireland (commonly known as the United Kingdom) is the sovereign state located near northwest coast of continental Europe. It is an island country spanning with an archipelago, accumulated with the northeast part of Ireland, and many small islands. Northern Ireland is the only part of the UK with a land border, sharing it with the Republic of Ireland. Apart from this land border, the UK is surrounded by the Atlantic Ocean, the North Sea, the English Channel and the Irish Sea. The largest island, Great Britain, is linked to France by the Channel Tunnel. (Wikipedia
SOME POLITICAL FACTS ABOUT THE COUNTRY The United Kingdom is a constitutional monarchy and unitary state consisting of four countries: England, Northern Ireland, Scotland and Wales. It is governed by a parliamentary system with its seat of government in London, the capital, but with three different national administrations in Belfast, Cardiff and Edinburgh, the capitals of Northern Ireland, Wales and Scotland respectively.
SOME ECONOMICAL FACTS ABOUT THE COUNTRY The UK is a developed country, with the world’s sixth largest economy by nominal GDP and the seventh largest in purchasing power parity. It was the world’s first industrialized country and the world’s foremost power during the 19th and early 20th centuries, but the economic cost of two world wars and the decline of its empire in the latter half of the 20th century diminished its leading role in global affairs. The UK nevertheless remains a major power with strong economic, cultural, military, scientific and political influence. It is a nuclear power and has the fourth highest defense in the world. It is a Member State of the European Union, holds a permanent seat on the United Nations Security Council, and is a member of the Commonwealth of Nations, G8, OECD, NATO, and the World Trade Organization. (Wikipedia
The Dairy industry contributes £6.8 Billion which is about 10% of GB GDP. The contribution has been steadily rising over many years. The industry contains many different specialist sub-sectors and, increasingly, changes in technology have led to changes in the nature of jobs within the industry. The trend towards fewer, more skilled and better-paid employees , necessitates a significant further investment in education and training. United Kingdom of Great Britain and Northern Ireland Flag
Royal coat of arms
Anthem: “God Save the Queen”[1]
The United Kingdom (dark green) shown in relation to the European Union (light green) and other areas of Europe(dark grey)
Capital (and largest city)
51°30′N 0°7′W
Official languages English (de facto)
Recognized regional languages
Irish, Ulster Scots, Scottish Gaelic , Scots, Welsh, Cornish
REVIEW OF THE MILK AND DAIRY INDUSTRY INTRODUCTION The dairy industry represents around 18% of the gross agricultural output of the UK, and dairy farmers are an important and sizeable part of the National Farmers Union NFU’s farming membership. Dairy farmers have endured difficult times in recent years, notably with regard to farm gate profitability. Soaring prices on the world dairy commodity markets in 2007 resulted in rises in farm gate prices, totaling an average increase of 8ppl by the autumn. This has created optimism in the dairy industry and allowed most farmers to start breaking into a profit. However, there are ten years of underinvestment and debt to make up for and farmers now need a sustained period of higher prices to enable some long-overdue investments in their businesses. While the outlook of the British dairy industry is broadly positive, the confidence of dairy farmers remains fragile. Production costs have risen massively in the last twelve months. Higher feed, fertilizer and fuel costs are eroding the benefits of higher prices. In addition to this are the substantial infrastructure costs that dairy farmers face under the proposed revisions to the NVZ (Nitrate Vulnerable Zones) Action Program. With these issues in mind, this document provides a background briefing to the dairy farming sector and looks at the future challenges and prospects.
Britain’s Dairy Farmers Dairy farmers in the UK are amongst the largest and most competitive in the European Union. Dairy farms are situated across the UK, but are concentrated mostly in areas where the climate encourages favorable conditions for grassland farming. In recent years milk production has gravitated towards the West and South West of England, West Wales and Northern Ireland. The number of dairy farmers in the UK has fallen dramatically, and continues to decline. In 2001 there were 26,110 registered production holdings in England and Wales. By February 2009 this had fallen to 12,465. This figure represents a 5% fall on February 2008 figures, and therefore reflects the continuing pattern of decline. Until recently, for every farmer leaving the industry another farmer was willing to expand. Consequently, the average size of dairy herds in the UK has increased from 72 cows in 1999 to 95 in 2010. At the same time, genetic and management improvements in dairy cattle have seen the average cow increase milk
production from 5,000 litres a year in 1993 to 9609 liters in 2011. In recent years however, the industry has seen a decrease in production, suggesting that either larger milk producing herds are leaving or the number of herds expanding has decreased. (Wikipedia , The
A Brief History of the British Dairy Industry Since the 1920s- 1994, the market for raw milk was managed by four statutory milk marketing boards (MMBs). One Board bought and sold all wholesale milk from farms in England and Wales. The MMBs were wound-up in the early 1990s allowing existing farmers to sell milk either to new farmer co-operatives created in their place or directly to dairy processing companies. The co-op, Milk Marque, was created for broker milk sales in England and Wales.
In the early days following the abolition of the Boards, dairy farmers enjoyed a relatively prosperous time as milk prices had increased to 27 pence per litre (ppl). However, the rise in milk price coincided with a unique set of economic circumstances driven by ‘Black Wednesday’ and the UK pulling out of the Exchange Rate Mechanism, which devalued the Pound against major EU currencies that had increased the value of EU market support and the competitiveness of UK dairy produce. Prices started to slide in 1998/9 and more and more producers opted to leave Milk Marque to supply dairy companies directly who offered a higher price as an incentive to join. Around the same time, a legal case was brought against Milk Marque by milk processors through the then Dairy Trades Federation, who argued that MM was operating as a complex monopoly and was abusing its dominant position in the raw milk market. In 1999, the Monopolies and Mergers Commission produced a report supporting the case brought to the Office of Fair trading by the DTF. The result of this case led to the break-up of Milk Marque. In its place, three daughter co-ops – Milk Link, Axis and Zenith were set up in 2000. In recent years these businesses have consolidated, Axis brands merging with Scottish Milk brands to form First Milk and Zenith with a small milk co-op, the Milk Group to form Dairy Farmers of Britain.
The Dairy Industry in modern times The dairy industry had seen remarkable consolidation at all levels in the last decade. While there were over 100 milk buyers in the country, six large dairy companies dominate the GB market. The largest dairy companies are:
Dairy Crest – The Company buys approximately 2.4 billion litres every year from 1,400 direct supplying dairy farmers, the majority of whom are located in southern, central England and South Wales (as well as some milk brokered from milk co-operatives, especially FirstMilk). Dairy Crest manufactures liquid milk and a range of dairy products, including cheese, milk powder, desserts, butter, and cream. Its best known brands are Cathedral City and Country Life.
Arla Foods -Swedish/ Danish farmers’ co-operative of approx 9,400 members, operating as a wholly-owned subsidiary in the UK. The company focuses on supplying fresh milk to retailers as well as managing dairy imports from Scandinavia and New Zealand. UK has a workforce of 6,300 and processes 2.3 billion liters milk at 13 plants, supplied mostly by the Arla Foods Milk Partnership, a farmer group of around 1,600 members.
Dairy Farmers of Britain – Farmer co-operative with around 2,600 farmer members, predominately located in the North of England and Wales. DFB makes a broad range of products including liquid milk, cheese, butter, ingredients and desserts, both for supermarkets and own brand. DFB also supplies milk to other dairy companies and runs eight separate processing sites and sixty distribution depots.
Robert Wiseman Dairies – Private dairy company that specializes in processing and delivering fresh liquid milk throughout Great Britain. It operates from 6 major processing dairies in Aberdeen, East Kilbride, Glasgow, Manchester and Droitwich Spa and a new dairy in Bridgwater, Somerset. The company has developed relationships with a number of major supermarket groups, resulting in more than 70% of its sales to multiple retailers.
Milk Link – Farmer co-operative essentially making cheese, ingredients and desserts. Milk Link supplies all the UK’s major food retailers, many of its largest food processors, and food services organizations. It is the UK’s largest cheese producer, with the bulk of its members being located in the South and South West of England.
First Milk – Farmer-owned business, with 2600 farmer members, formed in 2001, from the merger of two leading dairy groups. As well as supplying other dairy companies (notably Robert Wiseman Dairies in which it has a 15% stake and Dairy Crest) with milk, the company owns creameries in Cumbria, West Wales and the Scottish islands. There are also a large number of small to medium sized local or specialist processors such as Lactalis/ McLelland, Belton cheese, J Heler, Muller Dairies, Fresh ways, Medina Dairies and a small number of milk buyers that operate largely as intermediaries, supplying milk to a range of different markets.
The Current Dairy Market- The UK The British dairy market is observed as a domestic market. The UK is around 90% self-sufficient in milk and dairy produce and half of all raw milk is sold as fresh liquid milk. In the past, much of this would have been sold on doorstep rounds. Now the highest proportion is sold through major multiple retailers. Cheese takes up a further 28% of the market. Consumption of liquid milk had been declining until recently where statistics indicate stabilization in consumption, with increasing demand for low fat milks.
Utilization of milk by UK dairies 2010/11 (million litres) The concentration of the industry on liquid milk and failure to add value has had important consequences for British dairying. The industry has, to some extent, become more commoditized and struggled to capitalize on real growth markets. It has also seen the value of imports increase compared to the value of exports with recent estimations that the deficit.
OBJECTIVES OF THE REPORT The following objectives will be covered in the report in detail:
To study the Milk production in U.K.
To study the reasons for decline in milk production
Pricing factors for the industry
Challenges faced within the industry
To analyze the milk and its products consumption in the British families (Via Survey Method)
Milk production in U.K. Deliveries to dairies in the 2010/11 milk year totaled 15,212 million litres. Adjusting this figure for the presence of a leap year gives total milk deliveries of 16,176 million liters, the lowest cumulative figure since deregulation and around 500 million liters (4.2%) down on the five year average.
5 year average daily 2010/11 average daily
Looking at average daily deliveries by month shows the milk year started off relatively well with April deliveries only 0.9 million liters per day less than the five year average. This was a result of a mild spring encouraging good grass growth and early turn out.
The three months from May to July were the wettest on record which was one of the factors that led milk deliveries in July to fall to an average of 35.4 million litres per day. That was three million liters per day (7.8%) lower than the average for the month. This deficit decreased towards November with better weather and prices.
However the effect of the earlier poor weather on silage quality and rising feed prices appears to have impacted on milk deliveries in the final four months of the milk year with daily deliveries averaging 3.5% lower than the five year average.
The UK dairy industry employs more than 23,800 across 600 workplaces nationwide. It includes the operation of dairies and the manufacture of dairy products, such as ice‐cream. There are many well‐known companies, such as Yeo Valley Farms, Danone, Dairy Crest Ltd., Unilever ice‐cream and Wensleydale Dairy Products.
2009/10 2010/11 2011/12 Key facts: There are 23,800 people working in the dairy industry, of which:
87% of the workforce is in the operation of dairies and cheese 14% in the manufacture of ice‐cream
The industry represents 6% of those employed in Great Britain’s food and drink manufacturing sector.
36% of the workforce is 45 years or older.
45% of the current workforce will be eligible for retirement within the next 20 years.
13% of the workforce has a degree or equivalent qualification
. The highest qualification for much of the workforce is GCSE grades A‐C (20%) or A Levels (13%).
19% of the workforce has no qualifications.
Workforce statistics Number of UK employees: 23,800
Number of UK employers: 600
Gender: 76% male
24% female
Ethnicity: 92% of the workforce is white, 5% Asian/British Asian and 3% Black/Black British 2,300 migrant workers (non‐UK nationals) are estimated to be working in the industry
Age: 26% of the workforce is aged 16-30 years
14% is 30-34 years
15% is 35-39 years
13% is 40-44 years
22% is 45-49 years
Disability: 7% of the workforce has some form of work limited disability.
[N.B. Data derived from Labour Force Survey, 2010 and Annual Business Inquiry, 2009.]
Reasons for decline in milk production In most instances in the dairy industry, increases in production costs have offset/negated any efficiency gains made by expanding producers. More recently, this logic has been tested as milk production has gradually fallen over the last 5 years. 2011 was an exceptionally bad year due to the additional effects of poor weather on grazing conditions and winter forage quality. Cumulative production to March 2011 stood at just 13,215 million liters, which was 2% lower than last year and represents a production figure not seen since the 1974/5 milk production year. In addition, in the 2010/11 milk production year, the UK was a massive 986m liter (7%) under quota. Research suggests that the falling trend of milk production in the UK will most certainly continue in the short term. The low level of confidence has led to reductions in producer numbers and a reduction in the number of farmers willing and able to expand further. Coupled with this, the industry has suffered many years of underinvestment due to a sustained period of low milk price. In light of the challenges ahead in the form of environmental regulation, coping with the impacts of disease and higher variable production costs it is likely that we will see further contraction in the industry in the immediate future. Recent price increases have however brought some confidence back to some producers in increasing milk production on their holdings. The 2010 Farmer Intentions Survey from
Dairy Co revealed that 37% of dairy farmers intend to increase milk production, yet 7% of dairy farmers intend to exit the industry in the next two years. This forecasted increase in production on some farms, coupled with a reduction in the number of dairy farmers will result in a further fall in milk production by 2012/13 in Britain of 0.6%.
Pricing factors for the industry Milk pricing and profitability are the biggest issues affecting dairy farmers. The average farm gate milk price for 2007 was 20.66 ppl with a February 2008 average milk price of 25.62 ppl. This reflects a much needed 8ppl increase on the average farm gate price of just 18ppl in 2006 which has increased drastically in 2011/12 by 48ppl. Since the mid 1990s, the industry has seen a general decline in dairy farm profitability and massive restructuring has taken place at farm level. To cope with
Low Prices, farmers have sought efficiency gains to remain profitable largely through increasing herd size and cutting costs where feasible. In the past a combination of factors has driven farm gate milk prices including:
– Prices for internationally traded commodity dairy products
– EU market support
– Exchange rates
– The balance between the supply of raw milk and the level of demand for milk products
– Weak negotiation, due to structure of industry
– The costs of manufacturing milk
EU and world commodity markets have been seen historically as the biggest driver in raw milk prices. They are still influential and are the biggest reason behind the well documented increases in milk prices in the UK and elsewhere in 2011. However, the British dairy market is essentially domestic, which should limit the exposure to commodity market forces The British retail market for dairy products is fiercely competitive. In respect of the cheese market, for example, regular tendering is the norm and with large quantities of cheese imported from Ireland and other EU member states, there is fierce competition to secure supply contracts.
Costs of Milk Production It is notoriously difficult to establish average production costs, however over the last three years production costs have increased dramatically as a result of oil, fertilizer and feed price increases and the escalating cost of farm labor. The First Milk/Promar report of March 2009 suggests that the true cost of production for UK dairy farmers is estimated to rise to 36.64ppl in the next year, not accounting for any profit margin.
Challenges faced within the industry Access to raw material is key to global position Milk production is highly regulated by quotas and mobility of raw material is difficult
Raw milk is perishable and can’t be transported long distances
Milk production is challenging: no compromises on food safety, labour intensive and milk is collected daily
Seasonality of production leads to overcapacity
Requires long term investments on farm and industry level
Competitiveness of the dairy processors is increasingly decisive for the pricing of raw material milk to farmers
Better regulation and simplification Flaws are identified, but results are not satisfactory
Slow decision-making process
Lack of predictability
Horizontal regulations concerning feed, hygiene, claims and labelling
New regulations for animal welfare and quality labelling?
Milk specific regulation: drinking milk, spreads and preserved milk
Route to market – Access to world market Global players include different geographical regions in their business strategies, but SME´s have difficulties in approach. Specific support mechanisms could be helpful
Industrial policy is made too much on terms of agricultural policy
Technical and sanitary measures are barriers to trade: animal disease outbreaks, divergent analysis and sampling methods, zero tolerances, milk products and animal health standards
Innovations Innovations have been and are essential in improving the global competitiveness of dairy industry and creating value added products
Innovations in the future are more and more linked to the health and well-being of consumers. This means that more scientific evidence is needed for marketing of these products
EU should create and improve platforms to support such development in research. The Technology Platform on food research, called “Food for Life” is a good example of such development and creating science based innovations
Claims are essential and needed for marketing and consumer communication of these new products. This means that approval of claims should not prevent or slowdown this development
European level programs in science and research (7th framework program) are essential in boosting the science-based innovations in open environment. Probiotic dairy products are good examples of commercial success in this area
SME´s should have easier access to these programs
Environmental Challenges Among the biggest challenges facing UK dairy farming is how the industry interacts with the environment. The industry is working hard to ensure that any environmental risks associated with milk production are minimized and to deliver positive environmental improvements. Some notable achievements include a 13.5% reduction in methane emissions from livestock since 1990 and a reduction in overall fertilizer usage in dairy farming by 46% since 1997. Over 35% of farmland managed for dairy farming in the UK is now in an ELS environmental stewardship agreement. Action on farm is being co-ordinate through the Environmental Plan for Dairy Farming (EPDF). The EPDF promotes integrated solutions to tackling the sector’s environmental problems, i.e. solutions that tackle more than one environmental issue and are easy for farmers to implement such as nutrient management plans. In addition to the EPDF, the development of an industry ‘Roadmap’ for the dairy sector in England identifies the environmental impacts of producing and consuming milk across the supply chain and sets targets for mitigating and reducing those impacts. Critically, the Roadmap promotes better understanding of the social, economic and environmental benefits of milk and aims to achieve a balance between productivity and environmental improvement, thus securing the long term sustainability of dairying.
Other Challenges Animal health and welfare continue to be high priorities for the dairy industry. The UK dairy industry adopts the highest standards of animal health and welfare, monitored primarily through the Assured Dairy Farms (ADF) scheme, of which 95% of UK dairy farmers are registered. The England Cattle Health and Welfare Group (ECHAWG) also provide a forum for the veterinary profession, farmers, industry bodies and government to work together to tackle health and welfare issues such as Johne’s Disease, mastitis ,lameness, bovine Tuberculosis, an increasingly serious issue for many dairy farmers and, most recently, Bluetongue.
FINDINGS Analysis via survey method to detect the rise and fall in the consumption of milk and its products! This analysis was carried forward by using the survey method thereby utilizing the questions given in the form of a questionnaire to assess the participants on the total consumption of the milk and its products in the uk. A sample of 50 participants was drawn from the population for further analysis. A sample figure of the questionnaire is given below-
The procedure of the experiment that adopted the survey method as a means of reaching its destination has drew the following findings.
According to the survey, 38% of the individual’s preferred first milk as a brand over other milk brands and least no of people preferred milk link as a brand. This difference between the preferences must have existed due to pricing of the products, its quality, advertising and its availability.
Another interesting fact that emerged was preferences of individuals for choosing the type of milk and it was found out that 42% of people preferred whole milk over other milk types followed by least preference for skimmed milk with only 24%. This difference obviously existed due to quality difference and tastes of the milk types.
Another fact that was found out was individual’s preferences for powdered and bottled milk that showed a positive percentage for bottled milk with 78% and very little preference for powdered milk. This must be existent due to quality reasons of the milk and the freshness (preservatives vs. fresh milk).
The end part of the survey dealt with the family preferences for milk consumption in the UK. It was noticed that maximum no of individuals purchased the milk on alternate basis resulting in 46% from the total.
And the numbers of individuals consuming milk within the families are also ranked as high as 42% which reflected that all of the family members drink milk and its products almost on daily basis.
It was interesting to note that most of the individuals went by the price of the milk compared to the quality of milk which meant that they usually compromised over the quality over the price thereby resulting in gains for companies that provided milk at a cheaper cost compared to others.
Lastly it was asked as to which product of milk apart from its pure form was preferred the most and it was noticed that 46% of the British families preferred cheese product of milk and least preferred the butter 12% which shows the British preference of dairy products depending on their cuisines and dishes made in their homes.
By the end of survey finally it was found that most of the individuals preferred milk as an essential nutrient for their daily breakfast needs (64%) compared to any other meal of the day which reflects the energy source and dietary supplements provided by the milk maximize the most over other food supplements.
RECOMMENDATIONS FARMERS • Know your cost of production and Add value by maximizing your contract.
• Make use of the NFU’s inputs monitor and challenge suppliers to seek out best deals.
• Offer farmers proper milk contracts, in line with the NFU template, that provide long term stability and transparency on terms and price.
• Be transparent about costs, markets and milk prices. Show how you are improving efficiency and cutting costs at the factory.
• Promote the Red Tractor prominently, on front of pack, on all branded dairy products.
RETAILERS AND FOOD SERVICE • Food service sector to extend commitments to sourcing assured, British products to all dairy products and promote the Red Tractor to clients.
• All major retailers to increase the number of British, Farm Assured dairy product lines offered to consumers.
• Retailers to promote the Red Tractor prominently, on front of pack, on all own label dairy products.
• Retailers to establish direct, dedicated relationships with dairy farmers supplying British, own label cheese lines.
GOVERNMENT • All government departments to adopt the NFU model clause and specify use of Red Tractor in its procurement contracts.
• Establish a milk production taskforce to examine the reasons behind, and the solutions to, our falling milk production trend.
• Make farmers aware of the support and funding streams that are available to them through the RDPE. RDAs to ensure that these funds are easily accessible.
BANKS • Banks to honor long term, established relationships with clients. Pass on base rate cuts in full and support farmers – including tenants – to invest for the future.
NFU (NATIONAL FARMERS UNION) • Maintain the call for an independent body to take the politics out of animal disease and resist any attempt by Defra to transfer costs onto the industry.
• Continue lobbying to improve milk contracts offered to farmers by milk buyers.
• Maintain scrutiny on input costs to ensure that changes in prices are being passed down to farmers.
• Lead a positive campaign to promote the benefits of dairy farming and the importance of productive British agriculture.
CONCLUSION The outlook for the British dairy industry is broadly positive. Despite the irrefutable pressures that farmers continue to face, the future prospects for British dairy farmers is bright. Milk producers are efficient and operate in a prosperous, well-populated country, with strong traditions of consuming dairy products. Demand for many dairy products, worldwide, is increasing as a result of economic and population growth. Climatic factors appear to be pegging production in traditional export areas and the EU may be well placed to capitalize on world market growth in the long run. But there remain many significant short-term challenges.