19 July 2002

Lamb selling below cost of production

A SURVEY of sheep farming costs supports claims that lambs sell for less than the cost of production.

The MLC commissioned the survey by the Institute of Rural Studies at Aberystwyth, which shows wide variations between farms, with market returns obtained by the top one-third of flocks covering only 86% their production costs.

Farmers were asked to provide accurate variable costs and honest assessments of fixed costs, which many producers are reluctant to calculate. This is hardly surprising when the survey revealed that the third of farms with the highest total costs spent an average of 91p on fixed costs to produce 1kg of lamb worth 77p.

Prys Morgan, who analysed the results for MLC, says too many farmers just look at the end price of their lambs and ignore inputs like labour, machinery, finance and rent. But on average all the farms surveyed spent more on these items than on variable inputs such as concentrate feed, forage and medicines.

The average variable costs for all the flocks were 59p/kg of lamb produced, and fixed costs were 63p/kg of lamb. On the one-third of farms with the highest cost structure variable costs averaged 75p/kg of lamb sold, and fixed costs 91p/kg.

In contrast, in the one-third of flocks that contained costs best the corresponding figures were 39p and 44p/kg of lamb produced.

"The main items that pushed up costs on some farms were machinery, labour, feed and forage. When replacement charges were included the all farm total average costs were £1.42/kg of lamb liveweight sold, but the average was £1.97/kg on high cost farms and only 94p/kg on the third with the lowest costs.

Overall the farms surveyed ran an average of 913 ewes on 156ha (385 acres). Lamb output averaged 35.79kg/ewe and 32,662kg/farm. But the third of farms with lowest production costs ran 950 ewes on 158ha (390 acres) and output was 43.55kg a ewe and 41,379kg a farm.

In contrast, the one-third of units with highest costs had an average of 883 ewes on 191ha (470 acres). Output was 25.36kg a ewe, and the flocks marketed an average of 22,383kg of lamb.

Overall the surveyed farms realised an average of 79p/kg liveweight for their lambs, which covered 56% of their production costs. The bottom one-third of units picked up 77p/kg, but this was only 39% of input costs. The 81p/kg earned by the top third of farms still represented only 86% of production costs.

"We hope that farmers will see these figures as benchmarks for their enterprises. The variation indicates the scope for improving management efficiency, but it is clear that the most efficient sheep farmers cannot survive just on market returns." &#42