8 January 1999

Dairy elite can still do well – but rest warned

By Robert Harris

TOP dairy herds can still produce healthy incomes, according to the latest dairy farm costings from ADAS. But poorer performers must act now to survive.

Average profit for the top 25% of costed herds, each milking 130 cows on average, exceeded £60,000 a year in 1997/98, says ADAS head of dairying John Allen.

Although that profit is likely to drop by about £20,000 this year, this still represents a reasonable return, he maintains. Key to success is high output – yields averaged about 7000 litres in the group – and low costs.

"The results vindicate our message that output with tight cost control is the best way to deliver profit," he notes. Rent, finance and leasing costs in the top quartile of businesses were 3-4p/litre lower than the bottom 25% last year (see table). The overall profitability gap is likely to widen by a further 0.5-1p/litre this year, he adds.

"Lower leasing costs have often been brought about by a sound quota acquisition policy, taking account of longer term issues for milk quota and all the risks associated with continuing to lease quota."

Poorer performers must assess their commitment sooner rather than later, says Mr Allen. "Anyone who is not aiming for excellence would do better to pack their bags and go now."

Those determined to stick it out should gain control of finance and quota costs, he advises. Banks can provide competitively priced funds to help businesses restructure and grow. Long-term finance is available at 7% or less, and is likely to fall further if the euro is a success, says Mr Allen.

&#8226 Milk prices for November deliveries show only minor changes on the previous month. Milk Marque announced a trading bonus for the second month running, up 0.1p to 0.5p/litre.

Scottish Milk has moved to Bactoscan, instead of TBC, with a 0.3p/litre top band for counts below 50,000.

Unigate has reduced its protein rate from 1.552p to 1.44p a %.

(Single col table:)

Dairy costings (p/litre) 1997/98

Top 25% Bottom 25%

Variable costs 7.98 9.88

Fixed costs 8.64 9.23

Rent, finance 3.18 6.23

Profit 7.19 0.27

Source: ADAS

Dairy costings (p/litre) 1997/98

Top 25% Bottom 25%

Variable costs 7.98 9.88

Fixed costs 8.64 9.23

Rent, finance 3.18 6.23

Profit 7.19 0.27

Source: ADAS