2 January 1998

Counter falling milk price with cost controls

By Jessica Buss

and Emma Penny

DAIRY producers feeling the pinch from lower milk prices should aim to improve technical efficiency and cost control.

According to Axient, producers in its costing scheme face an average 63% fall in profits in 1997/98. Its director, Tom Kelly, suggests producers should prepare a cash flow budget to show the effect of reduced income.

"Look at the running costs of the farm on a daily or weekly basis and see if you can alter them.

"We are already seeing cheaper concentrate, and reduced use. But there is still scope to feed less concentrate and get the same yield with the extra silage available this winter."

He believes there is some scope to decrease costs, but claims the main opportunity is to increase output, producing more milk a cow to maintain income.

But SAC business adviser Jim Ritchie warns that for most producers, increasing output is not a viable option. "Is it worth spending almost half the value of milk on leasing quota?"

Andersons consultant Mike Houghton recommends producers dont go over quota, but instead aim to reduce concentrate input, and increase yield from forage, although he acknowledges that this will not make up the entire price deficit.

Mr Ritchie advises considering overall farm costs. "Machinery and fuel costs are particularly important. Often theres scope to sell one tractor and realise cash to strengthen the business. Hiring or using a contractor at busy times will alleviate its loss."

He also suggests avoiding capital expenditure on buildings, although parlour upgrades may be vital in order to meet milk buyers assurance schemes.

Mr Houghton suggests trying to find 10 areas to look at in detail and save a few hundred pounds. "Forward buying concentrates for next summer, checking you are on the correct electricity tariff, considering every-other-day collection – and who you sell your milk to – may help."

He also suggests putting farm insurance out for tender, considering a borehole for water supply, and buying urea fertiliser, which is currently good value. According to Mr Ritchie, lower fertiliser costs mean producers shouldnt be tempted to skimp. "Grow the maximum amount of grass you can, and utilise it to produce as much as possible from grazed grass."

CONTROLLING COSTS

&#8226 Feed less concentrate.

&#8226 Challenge cows with forage.

&#8226 Use of better genetics.

&#8226 Trim overheads.

&#8226 Avoid capital expenditure.

&#8226 Assess power needs and costs.

&#8226 Machinery sharing.

CONTROLLING COSTS

&#8226 Challenge cows with forage.

&#8226 Control overheads.

&#8226 Avoid capital expenditure.