Growth only option to meet needs of future

31 December 1999




Growth only option to meet needs of future

What will happen to UK

livestock sectors in the next

10 years? We find out, and

ask producers how they plan

to cope with changes.

Jessica Buss kicks off with

a look at the dairy industry

and how producers should

prepare for the future

DAIRY businesses must grow in the new millennium to increase turnover, but there are many different ways to find a profitable future.

Axient business manager Matt Sheehan says farm businesses will not compete in the industry or meet their own future needs if they dont grow.

"Structural change in the dairy industry is occurring faster than ever." This year has seen 6% of producers quit compared with 3.5% in 1997. Mr Sheehan predicts that figure could increase to 8-10% in 2000 and that the rate of decline will continue for some time.

"It isnt just small producers who are getting out, but they are seeing most change." A farm with 300,000 litres of output has a turnover of just £60,000. After production costs, there is virtually nothing left for a family living," he says.

"But when financially stable and with the right attitude, even small farms can grow, while increasing output is certainly the right move for many medium and larger farms.

"Increasing output and harnessing extra profit within that output must be the focus for those committed to dairying for the longer term."

Just cutting costs shows no real commitment to where you want to take the business, he warns.

"Cutting costs often means just doing what you have always done – but slightly more cheaply. With a 30% fall in the milk price in the last two to three years, this is not enough. A dairy business must set its stall out for growth and to find different ways of doing things.

"With milk production costs still at 20-21p/litre for many, you must be prepared to change the way you operate to find an efficient base before increasing output."

Increasing output means selling more milk, increasing its value or seeking other income sources.

Herd size has increased 8% in the last year and Mr Sheehan believes this growth will continue, while producing more milk a cow is also important for many – and it can be efficient. "The long-term trend is for yield/cow to increase by at least 4% a year," he says.

Quota is often seen as the stumbling block to producing extra litres efficiently when it costs 6-8p/litre, feed is 10p/kg and milk price is only 17p/litre.

"But there is a bigger issue here of building a business for the future. You must have a commitment to grow the business and find efficient ways of doing it."

Feed rate can be below 1kg/litre. Achieving a rate of 0.6kg/litre leaves a margin nearer 4p/litre. But its a challenge to achieve and may require, for example, a complete rethink of forage, heifer rearing or dry cow management systems, adds Mr Sheehan

To grow may also require extra land and buildings. These purchases are often seen as an obstacle, but it is important to have a clear plan to show how they can be acquired and used to make a profit, he says.

Be prepared to look at other opportunities and think boldly to overcome restrictions. It may even involve selling your farm to buy a larger unit or to take on a tenancy of a larger farm.

Consider a relationship with a neighbouring farm, which is perhaps going out of milk, to do your heifer rearing, so freeing up land and buildings for more cows at your unit.

Some producers, particularly on smaller units, could change the system radically to make the farm business a part-time enterprise. For example, a strict September/ October calving pattern, with all cows dry in summer could release time for a part-time or seasonal job as another income stream.

Alternative means of achieving business growth include increasing the return for milk sold. Organic production is a valid option for those with the right skills and commitment, while in some areas, EU schemes offer money to producers for developing marketing or added value businesses.

Its difficult to know which way to jump, says Mr Sheehan. "For every person there is a single best answer. But the key to success in the new millennium is having a commitment for business growth, being prepared to change radically and planning carefully."

DAIRYFUTURE

&#8226 More leaving industry.

&#8226 Herd growth continuing.

&#8226 Aim for business growth.


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