Efficiency – not output – is key to improving dairy profits

05 Nov 2019

Driving milk output is not the magic bullet for improved dairy profits. So says Promar International, which is advising producers to focus closely on production efficiency rather than solely on yield.

Announcing the latest results from its farm business accounts service, the most comprehensive analysis of actual dairy farm financial performance available in the UK, Promar’s Neil Adams confirms that the year to March 31, 2019, was a challenging one for the dairy sector.

Dairy profits

“While milk prices increased by 3%, most other price movements worked against dairy profits with energy costs up by between 14% and 20% and feed prices up 9%, coupled with increased usage due to the poor forage season,” he says. “Cull cow prices fell, while calf prices were broadly unchanged.

“Yield per cow increased by 2.4% on average while herd size grew 1.2%. Compared to the year to March 2018, income per cow was 5% higher but total feed costs increased by 11.9%. Variable costs increased 8% overall, which combined with a 2.8% increase in overheads resulted in profit per cow falling by 13.2%.

Net worth

“Combining these factors, the average profit for the 500 matched farms in our sample fell from £103,000 in 2018 to £73,000 in the year oy March 2019,” he adds.

“Net worth, which is the true measure of farm sustainability, fell for 45% of the farms in the sample.”

Cost control

Mr Adams says that there was a vast range in performance with a 240% difference in profit per cow between the top and bottom herds, principally due to superior cost control in all areas of the business. The top units, ranked on operating profit, had: 13% higher output per cow, an 8% lower feed rate, 17% lower variable costs, and 28% lower overheads,

To remain competitive and sustainable, generating sufficient profit to increase net worth, he says producers must focus on efficiency of production, not just scale of operations.