Significant numbers of dairy businesses will not be able to cope with a smaller subsidy payment unless they transform how they operate, analysts have warned.
Many operators have true costs of production running well ahead of income once subsidy is included, said Neil Adams, managing director of consultancy firm Promar.
The firm’s annual report on the 465 dairy farms they scrutinise shows that the bottom 25% of performers ranked by operating profit a cow remain in loss-making territory.
They have variable costs of 18p/litre and overhead costs of 18.7p/litre compared to dairy income (from milk and calf sales) of 31p/litre in the 2019-20 financial year.
The top 25% had variable costs of 14.6p/litre and overhead costs of 14.9p/litre against income of 32.4p/litre.
This left the bottom 25% making a loss of £294 a cow before subsidy and income from other enterprises, while the top 25% were making a profit of £422 a cow.
Profitability across the whole group averaged £92 a cow.
When current subsidy levels are added back in, they are worth about £160 a cow.
There are many measures of success, Mr Adams said, and many types of successful business, but he outlined some key performance indicators for two types:
- Milk yield averaging 11,700 litres
- Margin over purchased feed about £2,300
- Feed and forage costs of about 10.2p/litre
- Calving rate of 100%
- Replacement rate about 30%
- Stocking rate of no more than 2.77/ha
- Labour and machinery costs of about 11.2p/litre
- Retained operating profit of 19% or more than £600 a cow
- Milk yield averaging 8,300 litres
- Margin over purchased feed about £1,900
- Feed and forage costs of about 8.4p/litre
- Calving rate of 92%
- Replacement rate about 23%
- Stocking rate no more than 2/ha
- Labour and machinery costs of about 9.9p/litre
- Retained operating profit of 19% or more than £500 a cow