Pitfalls of expansion
DAIRY farmers looking to boost milk production this winter to fill quota should reach for their calculator before opening their chequebooks.
It is easy to overlook the hidden costs of producing extra litres, says Tim Archer, Promars national finance consultant. "There is a world of difference between simply increasing the size of the milk cheque and actually holding on to that extra income as real profit."
Research shows that raising yields per cow is the preferred route. Done well, it can produce extra milk for a 10p/litre profit. But, done badly, that figure can fall to just 3p/litre.
Extra feed is the biggest element, and can range from 6p to 14p/litre, depending on marginal feed rate and price of concentrate.
"In addition, farmers must also remember to allow for the cost of extra quota leasing, additional wages for longer milking times, and extra water and electricity charges. These extra overheads could amount to a further 2p/litre," says Mr Archer.
Buying in extra cows is less attractive, producing 2p/litre profit at best, according to Promar figures.
Extra feed, variable and overhead costs will amount to about 13p/litre. But the largest, and least obvious variation lies in the depreciation of the purchased cow.
"By carefully buying a very good cow at a modest price then this depreciation charge will be under 4p/litre. However, by buying only an average cow at an inflated price then this charge could be over 9p/litre. This variation could make the difference between profit and loss." *