Cost cuts help dairies survive low profits

By Jessica Buss

TOUGH cost cutting has helped many dairy businesses survive tumbling milk and stock prices even though average profits nearly halved in the past year, but the gap between the best and worst performers continues to grow.

Axients Farm Business Accounts service showed that milk producers with an average of 126 cows recouped £14,000 of a potential £24,000 drop in farm income in the financial year to March 1999.

But reporting the findings at a press conference in London last week, information manager, Tim Harper, said average profit on the costed farms was 44% lower than the previous year, at just over £12,000 after depreciation (see table).

That equals 1.5p/litre profit after depreciation, resulting from a total farm income of 23.1p/litre. About 10p was spent on variable costs and 11.5p on overheads.

For an average dairy farm, which has half the output of the Axient FBA average, that suggests a profit of £5000-6000 for the year, too little to be sustainable, he warned.

“Top 25% farms continued to make good progress and profits. But the difference between top and bottom 25% producers is wider than ever.”

The bottom quartile of farms made a loss of £20,500, or 3p/litre, from 116 cows, compared with top farms which achieved £46,000 from 136 cows.

The year also resulted in net worth of these bottom 25% businesses reducing by £23,600. FBA average businesses lost £3600.

Turnover on the latter fell by 9% to £183,000 during the year. The main contributing factor was a 2.15p/litre drop in milk price to 19.19p. In total milk price has fallen 6p over two years, added Mr Harper.

Falling calf and cull cow values reduced income by a further £7400. “But much of the fall in incomes has been recouped by keeping more cows and savings in both variable and overhead costs.”

Variable costs reduced by £5700, with cheaper concentrates down £20/t on average to £116/t and savings in quota leasing prices down 1.65p a litre to 7.86p.

“For the first time in many years overhead costs have also fallen,” said Mr Harper.


Farm Business Accounts results


Dairy output 166,496 150,192 18.9 (100)
Dairy gross margin 98,155 83,664 10.5
Total gross margin 116,679 103,704 13.1
Paid labour 18,740 18,604 2.3
Power and machinery 18,142 17,326 2.2
Sundries 13,109 12,640 1.6
Property charges 14,566 13,663 1.7
Interest 14,239 15,075 1.9
Depreciation 16,197 14,815 1.9
Profit (after depreciation) 21,686 12,122 1.5

*profit/litre figures rounded to nearest 0.1p

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