Top performing dairy farmers get more for their money – 45% higher gross margins from the same costs

— Analysis shows top 25 per cent of dairy farms making £725 more per cow compared to those in bottom 25 per cent —
— Analysing farm costs and income could help productivity says Rural Business Research —

With dairy prices continuing to hit the headlines, Rural Business Research, the group of universities and colleges behind the Farm Business Survey, have found that in 2014 the top 25 per cent of dairy farmers were making £725 more per cow compared to those in the bottom 25 per cent. This was despite expenditure on variable costs being very similar between the two groups.

The findings follow an in-depth look at 300 plus dairy farms included in RBR’s annual Dairy Farming in England Report, which showed variation in output was behind the huge difference in gross margins. The top 25 per cent farms produced 1800 more litres of milk per cow per year and their calves achieved a higher sale value. These farms on average also receive a slightly higher milk price, in 2013/14 this difference was 1.3p per litre.

The recent fall in dairy prices returns us to levels not seen since 2007 and current projections are showing little improvement over the next 12 months, if 2016 milk prices stay at 24 pence per litre. Even with an estimated 2.5 per cent increase in average milk yield and falls in input prices, the average 2016 gross margin is down to £889 per cow, a fall of almost £400 since 2014.

To see how their different performance groups will cope under changing price pressures, RBR researchers ran the average figures from each group through its Projection Calculator. While overall output decreases for each group, total variable costs also decline, with falls in concentrates, forage and other livestock costs having the greatest effect. However, the difference in gross margin between the two groups actually increases from 45 per cent to 48 per cent, with the farms in the top performing group projected to earn £570 more per cow in 2016.

Helen McHoul, lead author of Dairy Farming in England discusses these projections: “With no suggestion of an imminent price increase, and the industry facing ever higher levels of overproduction, understanding farm productivity is becoming increasingly important”.

She continues: “When you break down expenditure on variable costs you see that on a per cow basis the top performing farmers are spending less on concentrates and bought in bulk feeds but significantly more on vet and medicine, and producing forage. Other livestock expenditure is also greater on higher profitability farms, which includes AI and other specialist services such as foot trimming, teat dip and milk recording fees.”

Helen also explains that farms in the top profitability quartile have more efficient concentrate to milk conversion rates: “The most profitable farmers are getting a lot more milk for their concentrates. Farms in our lower profitability group spent 11.1p on concentrates per litre of milk, whereas those in the top performing category spent only 8.6p per litre. These figures add up, per
litre of milk produced, the most profitable dairy farmers are still seeing significantly higher gross margins.”

She continues: “The big difference separating top performing farms from the lower performing farms is productivity; we see little variation in variable or fixed costs. Obviously every farm is different but while milk prices stay at current rates, those farms in the top performance quartile are in a far stronger position to move into the future.

Enterprise gross margins and projection calculator are freely available at www.farmbusinesssurvey.co.uk.

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