CFP pins those costs down

5 February 1999




CFP pins those costs down

Struggling to identify areas

where costs can be cut on

your dairy farm? Comparable

farm profit could help.

Emma Penny investigates

WOULD you like to know which costs are cheaper than your neighbour – and why? Do you want to improve farm profitability?

Comparable farm profit could be the helping hand you have been looking for.

While CFP is already being used by producers in grazing discussion groups, it is a tool that is suitable for use in all dairying systems.

Filling out the CFP form below and comparing it with a neighbour who is running a similar system can often help identify areas where costs could be cut.

Some might argue that current benchmarking systems are fine, but CFP can help compare systems more efficiently than other measures available, says consultant Paul Bird. "Comparable farm profit looks at all overhead costs, excluding rent, finance and quota. Most other comparisons are derived from gross margins, which can often exclude labour, power and machinery – areas where potentially the greatest savings can be made."

Non-dairy income and expenses are excluded. Exceptions to this include income earned from sheep brought in to graze the dairy farm over winter, and crops grown on the farm to be fed back to dairy stock. Include these when calculating stocking rate, income and expenses. Interest, leasing and rent are also excluded as costs associated with borrowing money, leasing land or quota make efficiency comparisons difficult. But leasing costs for machinery should be included.

"Capital income and expenditure are excluded from the calculation, too, and significant transactions included in the profit and loss account should be excluded. However, depreciation is included, and is the best method for accounting for capital expenditure."

Working out the CFP for your farm is easy. All figures used relate to your accounting year, and not quota year where it is different. If you need more space, try photocopying and enlarging the table.

First, enter the litres produced, livestock unit numbers over the year and area used for the dairy farm operation in the top of the table.

Income figures for milk sales, stock sales less purchases and other dairy income are easy to calculate. The inventory change takes account of differences in stock numbers or feed quantity between year ends. For example, where cow numbers have increased by 10 from the previous year end, and each cow is worth £500, the inventory change is £5000.

In the expenses category, the first section – purchased feed – includes cow feed and minerals and feed for calves and replacements, often missed from feed expenses, says Mr Bird.

Labour expenses includes both paid and unpaid labour. "Including a cost for unpaid labour works on the basis that everyone who works on the farm should be rewarded by the business.

"Profit can look really good, but where there are three family members working on the unit including their labour costs can change business profitability completely."

According to Mr Bird, unpaid labour should be costed in at about £7/hour. "With a husband and wife partnership where the husband works full time on the farm his labour should be costed in at £7/hour for 2400 hours, a total of £16,800. Where his wife works part time, cost it at 1200 hours at £7/hour.

"That may seem a lot, but charging £7/hour for your time is probably too little," he warns.

Filling the cost boxes from vet and med – which includes foot trimming, worming and vaccinations for cows and calves – to straw, silage additive and plastic is straightforward, he says.

"Parlour sundries should include consumables such as dairy chemicals, wellies – items with no other home – and service and maintenance."

Power and machinery costs include repairs and spares, fuel and oil, electricity, tax and insurance, and contractors charges.

Depreciation and leasing includes sections for plant, machinery and vehicles, buildings and machinery leasing.

"Sundry overheads should include water, general insurance, office, phone and bank charges, but not interest. Council tax, advice and professional fees, subscriptions and other miscellaneous expenditure should be classified as sundry overheads," says Mr Bird.

Once the form is filled in – including the entry for repairs and maintenance of land and buildings – calculate total expenses.

"Compare costs with producers running similar systems. Everyone tends to have some costs which are lower, while some will also be higher. The aim is to find out where the differences lie, and whether there is an opportunity to cut costs – and so increase profit – on your unit," adds Mr Bird.

lA more detailed form, which will automatically work out cost/litre, will be available on farmers weeklys internet site FWi, on https://www.fwi.co.uk &#42

Stocking rate (livestock unit)

Dairy cow 1 LU

Dairy bull 0.65 LU

0-12 month cattle 0.34 LU

12-24 month cattle 0.65 LU

COMPARABLE FARM PROFIT CALCULATION

Litres produced………………………… Dairy area (ha)………………………….

Livestock units/ha…………………….. Litres/ha…………………………………

Total (£) p/litre

Income

Milk …………. …………..

Stock sales less purchases …………. …………..

Other dairy income …………. …………..

Inventory change …………. …………..

Total income …………. …………..

Expenses …………. …………..

Purchased feed …………. …………..

Labour (paid plus unpaid) …………. …………..

Vet/med …………. …………..

Breeding/AI/milk recording …………. …………..

Fertiliser and lime …………. …………..

Seeds and sprays …………. …………..

Straw, silage additives, plastic …………. …………..

Parlour sundries …………. …………..

Power and machinery …………. …………..

Depreciation and leasing …………. …………..

Sundry overheads …………. ………….

Maintenance on land and buildings …………. …………..

Total expenses …………. …………..

COMPARABLE FARM PROFIT …………. …………..

COMPARABLE FARM PROFIT WORKSHOPS

Want to know more about how you could improve profitability using comparable farm profit? The British Grassland Society is running a series of dairy workshops helping to identify ways of boosting returns on-farm. These will focus on providing practical information, a forum for discussion and time for working through issues on your own farm.

Attending a workshop costs £85 including computer software, a course manual, lunch, tea and coffee.

I would like to attend a workshop (please tick as appropriate)

q Carmarthen – Mar 1 q Carmarthen – Mar 2 q Taunton – Mar 3

q Winchester – Mar 4 q Stafford – Mar 8 q Penrith – Mar 9

q Stranraer – Mar 11 q Darlington – Mar 12

Please reserve me ……. places at my chosen venue. I enclose a cheque for ……. (£85 a delegate) made payable to the British Grassland Society.

Name…………………………………………………………………………………………

Address………………………………………………………………………………………

…………………………………………………………………………………………………

Telephone……………………………………………………………………………………

Fax…………………………………………………………………………………………….

No of cows………………………………. Size of farm (acres)………………….

Return this form and your remittance to British Grassland Society, No 1 Earley Gate, University of Reading, Reading, Berks RG6 6AT.


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