45% of dairy farm businesses lose value after tough year

Nearly half of dairy farm businesses are shrinking in value as the gulf widens between the best-managed enterprises and the rest, according to new research.

Rather than increasing herd size, farmers should focus on improving the profitability of each cow to remedy this, said Neil Adams, from dairy consultancy business Promar.

“We have some farmers that are doing phenomenally well and we have some farmers that are doing phenomenally poorly,” said Mr Adams.

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“It is management, more than anything, that determines the difference between top and bottom.”

Some 45% of milk producers saw a fall in the net worth of their business in the financial year ending March 2019, after rising feed and energy costs outstripped improvements in milk prices and production.

“The milk price is not going to save you. If you can’t make it work at these prices, you really need to have a sit down and figure out how you are going to make it work,” he said.

Better-performing businesses even took on the greatest amount of new debt, but were using it as capital investment, while poorer businesses had lower debt, but were using it to survive, said Mr Adams.

Average profit a cow across all 520 farms on Promar’s books fell by 13% as total variable costs increased by 1.3p/litre to 17.2p/litre, but farm income only increased by 0.84p/litre.

Best still making profits

However, the best farmers still managed to make significant profits and grow their net worth, despite the challenging year.

When ranked by operating profit (before rent and finance), the top 25% made £750 more a cow last year than the worst 25%, as yields were higher and management of costs was significantly better.

These highest-profit farms had milk yield a cow of 9,102 litres – 794 litres more than the poorest 25%.

This also helped to keep variable costs 17% lower and overhead costs 28% lower for each litre of milk produced, said Mr Adams.

Despite the challenging year, the best kept bought-in feed costs down to 9.86p/litre, compared with 11.5p/litre for the worst.