Lower costs drive profits on the top dairy farms
Margins on the top quarter of dairy farms were up to 12 pence per litre higher than the bottom quartile according to AHDB’s latest ‘Dairy Performance Report.’
The report examined data for all-year-round, autumn and spring block calving herds across Great Britain with financial year ends between December 2017 and June 2018.
The top 25 per cent and middle 50 per cent of farms across all calving systems made a positive full economic net margin.
The report shows a significant variation in cost between farms and emphasises the importance of sound cost management to help ride out any future milk price volatility.
The most profitable farms delivered consistently higher margins and lower costs regardless of calving pattern, although there was some variation:
• Top all-year-round calving herds made 12 ppl more margin than the bottom 25 per cent and costs were 10.5 ppl lower
• Margin was 9.2 ppl higher and costs 9 ppl lower for the top autumn-calving herds compared with the bottom quartile
• The best spring-calvers delivered 10.9 ppl more margin and 8.4 ppl lower costs than poorer performing herds
The main cost drivers for the difference in net margin between the top and bottom farms were herd replacements, feed and forage, power and machinery and unpaid labour.
The report enables dairy farmers to compare their own business with others operating the same system and helps them identify areas where changes can improve profit margins.
The report also looked at the performance of farms in major dairy-exporting nations and found a similar pattern with profit associated with lower production costs.
A typical UK farm compared well on overhead costs, but spent considerably more on machinery than its international competitors.
The most profitable farms do not look the same. The key is to operate the system that suits you, your local surroundings and your market, and to do it well.
Full economic net margin and full economic cost of production are two of the key financial performance indicators identified by AHDB as important for improving competitiveness on farm as part of its optimal dairy systems programme.
British dairy farmers continue to face challenges, including milk price volatility, uncertainty over Brexit and competition from other dairy exporting nations, both on global markets and on domestic shop shelves.
With this in mind, it is as important as ever to regularly review the direction, goals, strategy and costs of your dairy business.
Kate Ward, AHDB Dairy senior analyst – farm economics
