12p/L separates UK's top and lowest profit herds...how does yours compare?

Profit margins on the top quarter of dairy farms are as much as 12p/L 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.

It showed milk production costs rose by around 1.1p/L (a 4% increase) in 2017-18, compared with the previous year.

The average economic cost of milk production over the last five years for conventional GB dairy farms, based on a representative sample across all calving systems. Image source: AHDB Dairy, Promar International and partners

The biggest contributors to this were feed and forage costs – which increased by around 6%. Rises across other areas included bedding, paid labour and machinery and building repair costs.

However, over the same period, the GB annual average milk price sat just over 1p/L higher than the longer-term five-year average milk price.

As a result, the top 25% and the middle 50% of farms across all calving systems made a positive net margin.

Kate Ward, AHDB farm economics senior analyst, said: “The report shows a significant variation in cost between farms and emphasises the importance of sound cost management to ride out any future milk price volatility.”

Findings

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 12p/L more margin than the bottom 25% and costs were 10.5p/L lower.
Margin was 9.2p/L higher and costs 9p/L lower for the top autumn-calving herds compared with the bottom quartile.
The best spring-calvers delivered 10.9p/L more margin and 8.4p/L lower costs than poorer performing herds.

However, the top 25% across all three systems had production costs below the five-year average milk price, making them more likely to be able to ride out future milk price volatility.

The main areas in which top dairy farms performed better were herd replacement costs, feed and forage costs, power and machinery and unpaid labour.

Data from dairy farms in other major exporting dairy countries also showed the competitiveness of the typical
UK farm was adversely affected by its high machinery costs, despite competing relatively well across most other areas of expenditure.

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.

Miss Ward added: “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.”