"You can't furlough a cow" - local reaction to the Government's dairy response fund

Brian Harvey Partner and Head of Agriculture PKF Francis Clark
Brian Harvey Partner and Head of Agriculture PKF Francis Clark

Dairy Response fund doesn’t go far enough as fragility of the supply chain is exposed

Set up to address the business impact of Covid-19, the Government’s new dairy response fund is open to applications from today. (THURSDAY, JUNE 18TH)

But is it as good as it sounds?

Brian Harvey, Partner and Head of Agriculture at regional accountants and business advisers PKF Francis Clark, covering South West England, described the fund as more of a headline maker than of being genuine financial assistance for many dairy farmers hit by reduced milk revenues due to the pandemic.

A one-off payment will be paid of up to £10,000, to help “those dairy farmers most in need of support to sustain their business, albeit this amount will not be paid until July - over three months since the pandemic hit the supply chain hardest”.

In order to be eligible for this fund, farmers will need to demonstrate that they suffered a reduction in the average price paid for their milk of 25% or more in April 2020 when compared with two months before, in February.

But Brian said: “Unfortunately the £10,000 is a drop in the milk ocean compared to the revenues lost by the dairy farmers hit hardest by the pandemic, and the complexity of the rules will mean that some of those might not actually qualify. This cannot be right and needs further consideration.

“I also question why the 25% eligibility criteria? Does this mean that drop in the milk price of any less than this is deemed to be acceptable?  A margin price drop of 1p or 2p per litre can mean the difference between a profit or a loss, and ultimately a business surviving or failing.”

The vast majority of dairy farmers will have been impacted by a reduced income due to general industry supply chain issues beyond their control but will not be able to access these funds.

Brian said: “I guess that the real issue here lies in the fact that dairy farmers have fixed costs of production and that they already toiled away with paper-thin profit margins even before the crisis. Any further general downward pressure on the milk price will be have a further detrimental knock-on effect on the industry and for some will be the final straw.

“You could not furlough a cow for a few weeks or months in the same way that nearly nine million people in the UK have been to reduce the financial burden on the strained balance sheets of companies and organisations.”
Brian added: “The fund is no doubt well-intentioned. However, the issues we have seen have really highlighted the fragility of the UK dairy sector. To see thousands of litres of milk being thrown down the drain at a time when supermarket shelves were empty was a travesty.

"If the Government has a real interest in the dairy industry and wants to retain it for the future then there are lots of questions across the whole supply chain that need addressing and this will go well beyond a one-off hand-out for the few.”

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