How to be the cream of the dairy crop

There’s so much consumer choice when it comes to milk, but whatever your choice, behind every bottle and carton lies a heavily invested specialist industry.  If you’re a dairy farmer, how much, and what, you invest in your business can make the difference between being in the top or bottom 10% of your industry.

Blue, green, red, and gold top.  Pasteurised, raw and filtered, cow and goat.  Strawberry, banana, and chocolate flavours. Available from the milkman, the farm shop, the supermarket, the garage, or the vending machine on the farm drive. Milk is one of our basic staple foods, with figures suggesting we drink on average 144 pints per head per annum.

Another lockdown

Milk prices remained stable throughout 2019. However, in 2020 the Covid-19 induced national lockdown caused huge problems for those supplying the food service market which went into freefall with the closure of so many catering outlets. A and B quotas were re-introduced, and some milk went uncollected with up to 2m litres thrown away each day. The wholesale market did recover relatively quickly after the initial shock. As the market has adjusted over the last eight months it is to be hoped the consequences of a second lockdown will be less serious. Back at the farm gate milk production in September achieved the second highest level of litreage in the last 25 years.

Being average is no longer acceptable

Past FOLK2FOLK Dairy Seminars have focused on the Old Mill/ Farm Consultancy Group Cost of Production Report. This looks at a group of dairy farmers all with a March accounting year end.  This year’s recent report shows ‘The top 10% of producers once again outperformed the bottom 10% by over £1,000 per cow despite income levels being only £142 per cow higher’.  20% of the sample did not break even.  2.5% of producers are ceasing production annually identifying the costs of increasing welfare standards and continually changing EU subsidy schemes as the main drivers.

There are a multitude of systems to produce milk.  Comments made by Tim Morden, Deputy Director at Defra, at a recent event held by the Royal Association of British Dairy Farmers would apply to any system: “productivity in the dairy industry is not about producing as much milk as possible, it is about how we turn inputs into outputs”.

Targeting capital investment

The Old Mill/Farm Consultancy Group report also shows the power and machinery costs of the top 10% of the sample at £368 per cow compared to £710 per cow for the bottom 10%.  Much of this is made up of higher depreciation charges alongside higher contracting charges indicating an underutilization of expensive farm machinery.

It is always nice to have the latest bit of kit but is it the best route for any capital expenditure?  Should cow comfort be a higher priority?  Is your housing for youngstock adequate, is your dirty water system fit for purpose or what about that bit of land coming up for sale next door?  Where will future capital investment in your business show the greatest return?

FOLK2FOLK provides finance for rural enterprises and SMEs across Britain, helping them to grow, develop and diversify. Could a cash injection help you be in the top 10%? You can talk to us on 0371 454 4027.

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By Ian Bell, Head of Farming & Rural Engagement

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