crunch came
How a unit survived when
crunch came
Comparable farm profit has
helped one Welsh producer
react positively to falling
milk and cattle prices.
Emma Penny reports
WHEN Pembrokeshire dairy producer Kim Petty realised that his drop in farm income was greater than profit, he recognised something had to change – and fast.
"We used to make a good living milking 80-90 cows. We tried to do things as cheaply as possible, but ensured we got maximum prices for everything we sold – barren cows would fetch more than £500 and calves would top the market. We would do well at the end of the year, but didnt address our production costs."
The tumbling milk price, rock-bottom calf values and the OTMS scheme meant that the business, which Mr Petty runs in partnership with his wife Debbie at Tyddyn Yr Eglwys, Clydey, Llanfyrnach, had to change to survive.
Expansion was considered but, as consultant Paul Bird explains, overhead costs must be tackled first. "There is a danger that increasing output simply means you work harder, but make less profit – its vital to sort out overhead costs first."
Thats where using comparable farm profit (Livestock, Feb 5) comes into play. Mr Petty started working out his CFP figures when attending his local grazing discussion group. Within the discussion group, costs are compared and when a producers costs are low, members look at why that is and how they could emulate that.
"Working out cost/litre has really focused my mind on profitability. I used to be obsessed with figures such as yield from forage. Now Im driven by CFP, and Im amazed how much it costs to produce a litre of milk."
He admits that working out his first years figures was hard work. "We went through 360 invoices, marking items according to which section of the CFP form they fitted into – a process we do automatically now. When you look at individual costs its very revealing.
"With CFP we include costs which are often forgotten such as cow minerals and calf feed – you can get a shock when you realise how much they cost. Our labour is also costed in at £7/hour – a figure thats probably too low," says Mr Petty.
In 1997, total farm expenses including depreciation, but excluding any finance costs, land rent or capital expenditure came to 17.94p/litre. This gave a profit – before rent, finance and quota – of 9.73p/litre from the 5800 litre herd.
But falling milk and cattle values mean profitability was likely to fall – 1997/98 figures show that the Pettys made only 7.81p/litre before other costs, while this years budget shows CFP at only 5.94 p/litre.
"We could see from budgeted figures that we needed to do something to improve profitability. We are in an area where there is no alternative milk buyer to Milk Marque so we cant swap to a buyer with a higher price and have to produce at low cost," he stresses.
Further fall
Having realised that profitability was likely to fall further without a significant business shake-up, the Pettys took action. After comparing their figures with others in the Grasshopper discussion group, feed, fertiliser, and power and machinery costs were identified as areas for improvement. It was also apparent that herd size and quota should increase.
Making these cost cuts was helped by the Pettys decision to move to spring block calving and produce a greater proportion of milk from grazed grass.
"Spring calving means we should manage to graze for longer in autumn and once housed, cows will need less silage as they will be dry. This should cut silage-making costs in p/litre. However herd expansion means we will be feeding 150 cows and 40 heifers instead of 90 cows and 30 heifers, so well make only slightly less silage."
Spring calving will also suit grass growth, despite the Pettys farm being 215m (700ft) above sea level at its highest point, receiving an average of 1600mm (63in) rain.
He admits that making better use of grass involves a change in mind-set. "Weve got to be flexible. I know that it wont always work well, but weve got to be prepared to exploit seasons when they suit grass growth. In autumn 1997 we had too much grass going into winter."
This winter, grass has grown well, and Mr Petty aims to turn out by mid to late February, and hopes to graze cows into December. "Im going to start recording growth so I have an idea of growth patterns on the farm and can plan accordingly. We are also putting in access tracks and more water troughs."
While some would argue that grazed grass is only suitable for certain farms, Mr Petty sees another side to the argument. "Theres a whole industry built up a round supplying farmers. This way, were buying less and keeping more."
Expansion, with more cows on-farm, means he could opt for a shorter lactation. This has two benefits. It is more cost-effective to employ a relief milker when there are more cows on-farm, making taking time off less daunting on the pocket.
Drying cows off over winter means the Pettys will, for the first time, be able to visit family members in New Zealand at Christmas – a key ambition. "Our other aim is to make sufficient profit and have a better lifestyle.
Cost cut aim
"This year, we aim to cut costs to 14.4p/litre, achieving a profit of 5.94p/litre. Our aim for 2000 is to restore profitability to its level two years ago by cutting costs to 12.11 p/litre and spreading them over more litres."
Producing more litres meant purchasing additional quota, and the farm now has 700,000 litres – far more than the 240,000 litres the Pettys started with.
"Expansion is not without cost – rent, finance and borrowings have to be accounted for after the CFP figure. But were lucky that weve been able to get enough land and quota to expand – three years ago I would never have dreamed that wed have 150 cows," adds Mr Petty.
CFP BENEFITS
• Better cost control.
• Allowed expansion.
• Using for budgeting.
• Month-by-month review.
CFPBENEFITS
• Better cost control.
• Allowed expansion.
• Using for budgeting.
• Month-by-month review.
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.
Comparable farm profit (p/litre)
97/98 98/99 99/00
Income
Milk 20.20 18.40 18.5
Stock sales less purchases 2.04 0.40 1.54
Inventory change 2.28 1.88 –
Total income 24.67 20.68 20.04
Expenses
Purchased feed 2.75 1.77 1.40
Labour (paid plus unpaid) 4.65 4.25 4.25
Vet/med 0.82 0.95 0.70
Breeding/AI/milk recording 0.52 0.56 0.50
Fertiliser and lime 1.53 1.50 1.20
Seeds and sprays 0.10 0.08 0.06
Straw, silage additives, plastic 0.40 0.37 0.36
Parlour sundries 0.56 0.50 0.38
Power and machinery 2.87 2.30 1.80
Depreciation and leasing 0.98 0.86 0.60
Sundry overheads 1.08 1.00 0.75
Repairs to land and buildings 0.60 0.60 0.46
Total expenses 16.86 14.74 12.11
COMPARABLE FARM PROFIT 7.81 5.94 7.93