Dairy farmers know how tough coping with crashing milk prices can be.
With milk prices below 25p/litre and more volatility expected, simple cost cutting is no longer the only option.
Kite Consulting’s Progressive Dairy Operators conference, held on Monday (23 March), heard lots of advice on how to run a business on a budget, while also planning for the future.
Here are seven highlights:
Edward Lott, Kite Consulting partner
- Know the cost structure of your business. First, you need to know each aspect of your production costs. Is your business breaking even at 24-25p/litre? That’s where the top 25% of businesses are.
- There’s no silver bullet to cut costs. Look at all areas, from vet and medication to feed costs, and see what smaller savings you can make. Cutting several costs by just 0.1p/litre could add up to a big improvement.
- Have a plan, even in a downturn. Base goals on concrete things such as how much money you want to earn and what assets you want to build up for the family. And keep an eye on the future, even when prices are at the bottom of the curve. Low points don’t last for long.
- Keep talking. In a family business, good communication can easily be overlooked. That is especially true in tough financial times, when it seems easier to crack on with work rather than sit down for a meeting. Everyone needs to know where the business is heading.
- Profit is essential. IFCN forecasts an average milk price of 29p/litre for the next 10 years. But the business must make enough profit in the good years to survive the bad ones. Above-average businesses can aim for retained profit of more than 5p/litre or £500-£600 a cow, after all costs.
Peter and Sarah Simpson milk 735 Holstein Friesians at Culscadden Farm in south west Scotland. Their five-year plan is to reach 1,050 cows by 2017.
- Pool local knowledge. The Simpsons are part of a benchmarking group with three other Galloway dairy farms. They meet quarterly to share all their physical and financial performance data, apart from rent, finance and drawings. The comparisons are realistic, as the businesses are in the same area, and the scrutiny has helped the Simpsons cut variable costs by 1.5p/litre in the past two years.
- Stress test. Go through your budgets and put in different milk price scenarios, stripping out any extraneous expenditure. You can work out how much of a storm you can weather.