Another Year – Similar Conclusions!

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Gerard Finnan (Sherborne)

Over the years in compiling The Dairy Cost of Production report it is still much the same trends and conclusions:

  • The system of milk production will not determine profits; it is the management and allocation of resources to produce the milk efficiently and sustainably.
  • Costs of doing work (Power & Machinery and Labour costs) which have risen 10.7% (+£37,500) on average in a year when overall costs of production were static. This group of costs includes depreciation which partly covers the writing down of the capital investment being made on farms to ensure future compliance and improving water quality e.g., adequate slurry and dirty water storage.
  • The gap between the top and bottom 10% by Profit Per Cow increases further with larger scale and farms with lower costs of doing work more likely to be in the top 10% e.g., bottom 10% of farms spent 2.5 times as much as the top 10% on farm repairs highlighting the need to invest and catch up to become e.g., water quality compliant.
  • Benchmarking & highlighting a business’s financial strengths and weaknesses is only the start of the process of getting into the average to top 10% bracket. This is where you will need to position your business in the future to have a sustainable and profitable dairy farm. Acting on the weaknesses and consolidating the strengths along with budgeting forward and managing cash and investing it wisely within and outside your business in the future will be key to helping you achieving your aims.
  • Making market volatility your friend not your foe. What I mean is as a commodity industry market prices are very volatile and open to significant changes and shocks. When milk prices have increased significantly recently, should you be forward buying feed, fertiliser and fuel at fixed prices NOW, which make up a third of your costs of production and will have a significant effect on profit? Some of these commodities are at their lowest prices in three to four years. Focus on what you can control. Too much time is often spent on issues like milk price and weather which are important but over which we have no control.

How is your business performing? Where will it be in twelve months and five years’ time? Do you and your team have a plan in place with actions to execute that plan? It begins with defining your aims and goals, followed by benchmarking.

For a review of your business performance, contact Gerard at gerardfinnan@fcgagric.com or your local FCG Office.

Old mill Milk Cost of ProductionDownload

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