Make reducing fixed
Make reducing fixed
costs a top priority
Dairy farmers are facing a rewarding future if they are able
to add value to their businesses. This was the message
outlined at last weeks Beyond Grazing conference, held at
the Royal Agricultural College, Glos. Hannah Velten reports
THE face of dairying is set to change when producers have to compete on the world market, but reducing fixed costs, working with other producers and having clear business goals should increase producers competitiveness.
According to Peter Cook, head of SACs rural business unit, the UK dairy industry will be forced to change, particularly when having to compete on the world market due to CAP and GATT reforms.
Support prices will be slashed, and although there will be protection in the form of variable levies, world demand and supply will create volatility in the milk market and buyers will look further afield for the cheapest produce and processing, he said.
"Individual dairies need to make rapid changes so that they can adapt to future price squeezes," he told conference delegates. Warning against slashing inputs, he said that this never pays and results in further financial loss. Instead, he urged producers to keep investing money in basics, such as fertilisers, maintaining soil structure and balanced feed rations as these give the best financial returns.
But fixed costs should be targeted for reduction and there is plenty of scope for producers to do this, Mr Cook added.
"The 1998/99 Farm Business Survey of 417 English dairy farms shows average fixed costs of £722/cow, excluding interest and drawings. Fixed costs need to become variable, especially labour, power and overheads."
Practical strategies to accomplish this include working with others to share machinery, staff or parlours, group buying of feed or fuel and contracting out work such as heifer rearing or feeding, which will also help to simplify production systems, he said.
Producers should also make use of natures machinery – the cow. "Work with the cow to establish simple systems that improve her, not replace her. She is a natural drum mower, feed mixer and slurry wagon, so use her to cut machinery, labour and building costs."
However, all dairy farmers need to make time to write an annual business strategy. "Ask yourselves, how would I manage the farm if I was working for shareholders?"
Business objectives need to be identified and an analysis of business strengths and weaknesses should show where changes in strategy are necessary. Specific decisions need to be guided by looking at budgets, which will identify accurate costs and margins, he added.
Fixed costs need to become variable, particularly labour, power and overheads, says Peter Cook.
DAIRYING FUTURE
• Compete on world market.
• Cut fixed costs.
• Clear business goals.