Cost control key to higher profitability
DairyCo’s latest Milkbench+ report reaffirms last year’s findings that 60% of the difference in margin between top and bottom performers is down to the management of four key cost areas.
Management of costs for feed and forage, herd replacements, labour, and power and machinery explain the majority of differences between producers. Mark Topliff, AHDB head of production economics, says: “As in 2012, Milkbench+ analysis has shown that by controlling production costs effectively, businesses significantly increase profitability. No one is saying that it is easy but it can be done and those that achieve it reap the benefit.”
The report is based on information from dairy herds with financial year-ends between December 2011 and June 2012. Clearly, input costs and milk prices have moved significantly since then but the drivers for efficient milk production have not so the report reveals some important ‘truths’. The report shows that across the Milkbench+ sample the range in milk price for most is: 5ppl, less than half the range in production costs: 12ppl for most, which confirms high variability in costs and therefore an opportunity to reduce them for those performing below average.
The report also confirms that it’s not what you do, it’s how you do it, that makes the difference, with the top 25% of producers across all systems making better margins. “No one system guarantees better financial performance,” says Mr Topliff. “Instead, it’s about matching system and resources and controlling the key costs. The best farmers control costs effectively.
“For example, across all system types feed is the biggest single cost and efficient feed use is fundamental to higher margins. Better performing farms make better use of feed and produce more milk from forage. Across the sample, a 10% increase in the proportion of yield from forage resulted in a 0.8ppl reduction in feed costs.
“Herd replacement cost is a key area where there is considerable variation. Reasons for culling are consistent across the sample and setting a herd replacement strategy can significantly reduce replacement costs irrespective of system.”
A third area to focus on is the cost of getting jobs done – the combination of labour and machinery costs. In all categories, higher margin farms had lower labour and machinery costs. “There is a big variation between farms,” says Mr Topliff, “with little evidence that an increased investment in machinery materially reduces labour costs.”
“It is important to note that yield per cow did not correlate with net margin and there is evidence that smaller herds can control costs as well as larger herds, which means that all dairy businesses can be profitable irrespective of system type or herd size.”
The full DairyCo Milkbench+ report 2013 is available to download at www.dairyco.org.uk
