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Decisions4Dairy: Optimising your milk contract – hygienic quality

Published 18 July 16

Decisions4Dairy: Revenue

In the first of a series of articles under the #Decisions4Dairy – Optimising Revenue theme, AHDB looks at the value of good hygienic quality to milk buyers, and some key facts that farmers should bear in mind when looking to optimise their revenue.

Impact on milk price

Most milk buyers include incentives for better hygienic quality in their contracts. The value of these incentives varies significantly between buyers. The charts below show the average deductions* by milk buyer type for all the milk buyers in the AHDB milk price calculator.

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It is worth noting that significant contract penalties kick in much sooner for farmers on aligned contracts than they do for those on standard manufacturing or liquid contracts. In fact, some aligned contracts state that milk will not be collected above 50,000 bactoscan or 250,000 SCC.

Up to a point, penalties for high bactoscan and SCC can be justified by pure economics. Bacteria in the milk multiply at an exponential rate and feed on the solids in the milk as they multiply. Therefore, the higher the bactoscan at collection, the quicker the milk needs to be processed before it goes off and the more value will be lost from the solids in the milk.

That said, the economic argument does not fully justify some of the big penalties seen in milk contracts that apply from relatively low levels. These larger incentives are more likely to be included, and intended to act, as incentives to drive further improvements on farm or for competitive reasons. Most major retailers, for example, will be pushing welfare-friendly messages to their consumers and strict SCC and bactoscan targets is one way they see of achieving this.

Not all averages are the same

For most milk buyers, the calculations for SCC and bactoscan have not changed since the Milk Marketing Board days. In general, the calculations are done using geometric means over three months and two months, respectively. Geometric means are used to reduce the impact of outlying results (ie if there is a particularly high value in any one month).

The key fact to remember is that the geometric mean will never be higher than the simple average. The difference between the two will be widest when there is one extremely high result in among low results. Milk buyers also have different arrangements for dealing with rogue high results. Some will just rely on the geometric mean to dampen the impact to the farmer. Some will automatically remove the highest single result in the period before calculating the average. Others wait for farmers to appeal before assessing whether the result will be excluded.

For example: If you have 8 bactoscan results (in ‘000s) over 2 months of 20, 25, 20, 180, 25, 35, 25, 20. The geometric mean would be 31, compared with a simple average of 44. If the rogue high result of 180 is removed, the geometric mean would drop to 24. Understanding how your milk buyer calculates their average is important in understanding how significant a single high result will be, and how much this may change the payment band for milk quality. It is also important to remember that, in most cases, a rogue result will impact on the average for two or three consecutive months.

Anybody who is worried about how their hygienic quality averages are being calculated should, in the first instance, use the AHDB geometric mean calculator tool by clicking here. If this does not answer the question, please get in contact with your local AHDB Dairy Knowledge Exchange team member.

Optimising returns

It is worth pointing out that the hygienic quality of milk in GB is among the best in the world. It has also been continuing to improve. Over the last five years, bactoscan has improved by an average of 2.4% per year, while SCC by 3.3% per year. However, milk buyers are continually pushing for further improvements by adjusting the cut-off points for applying penalties.

Analysis of Genus data for milk delivered in the latest full year suggests that some farmers may be incurring penalties (or losing bonuses) for not hitting hygiene targets. The charts below show the percentage of milk delivered across the different hygiene levels.

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 Applying average penalties or bonuses to the volumes of milk delivered at the various levels of hygiene suggests roughly £40m (or more than 0.3ppl) was lost in milk payments due to hygienic quality. The analysis is based on average results, and the impact at individual farmer level will vary significantly.

Optimising returns is all about the comparison of the additional value versus the additional cost to achieve the improvement. The AHDB milk price calculator is a useful tool for farmers to assess the benefit of further improving their hygiene. The results should also be assessed against the cost of driving the improvement on farm but always being mindful that hygiene targets have been raised over recent years and are likely to be raised further in the future.

* The incentives have all been rebased to show the ppl price impact, assuming the top band is zero impact.