SNUB YIELD, EMBRACE PROFIT

20 March 1998




SNUB YIELD, EMBRACE PROFIT

Forget about expansion.

Take the cows back to the

grass. You can make a

profit, and youd better

believe it. Leonie Foster* explains her case

UK DAIRY farms have been set up at great capital cost to take grass to the cow. New Zealand dairy farmers take the cows to the grass.

Fed by grant driven investment, European dairy farmers have allowed yield a cow to dominate their thinking. What really counts is the highest profit generated for the lowest on-going investment.

Faced by collapsing milk prices, and stuck on the expansion at any cost treadmill, the industry is now so exposed that a further 10% drop in product price or, worse, a change in EU policy, will eliminate profit for the average farmer if he doesnt change.

Expansion is not in itself bad policy. But expansion from an inefficient base is financial suicide.

For example, suppose a milk producer with 400,000 litres of quota cut 2p/litre off their production costs. That would equate to an extra £8000. This is the same profit likely from doubling quota size by leasing (assuming a margin of 2p/litre after paying for the lease).

Why double the herd size and facility?

This attitude has come about because milk producers have overlooked their cheapest resource – grazed grass. Few farmers in Ireland can actually tell me how much profit they are making from farming. Most could tell me the milk price, yield a cow – they are production not profit orientated.

The industry is focused on maximising subsidies and minimising tax, rather than on managing the farm to produce high quality milk at the lowest possible cost.

Low input, low investment, high profit farming is a way of life, a committed way of thinking, not a fashionable option. An example is a farmer in Ireland with a 360,000-litre quota, who supplied his accounts since 1995 for group discussion. From 1995 to 1997 his gross income from milk and cattle sales had dropped by £40,000 with the stock numbers on the farm remaining the same.

This reality – the result of lower milk prices, lower beef prices and some reduction in quota available, was £40,000 less coming in. However, this farmer still had the same net profit in the 1997 financial year as he did in 1995.

Before 1995 he realised he would have to change his management approach. He decided to improve the proportion of grazed grass in his cows diet. On the verge of expanding his cubicle accommodation, he invested instead in roadways, subdivisions, multiple gateways and drinking troughs.

In 1996/97, with improving management skills, he grazed for 11 months of the year. While one group of animals was inside, another was out. His existing accommodation was, therefore, more than adequate. Before 1995 all stock were housed for five months every year.

The biggest limitation to a longer grazing season is not land or climate, but what people believe is possible. Today, Irish farmers who believed it was impossible only five years ago, are grazing in December and February.

They achieved this not because of favourable location, but by management, initially shifting their turnout dates two weeks earlier, then going further as grass management and grazing skills improved.

It costs about 3p to grow a kg of grass dry matter if we calculate the cost from the fertiliser requirements. The relative value of concentrates, conserved grass and grazed grass (see table 1) clearly show the value of grazing.

Even this comparison alone is simplistic. Add to these costs the true capital and labour cost of concentrate or silage feeding, as opposed to letting the cow harvest the feed herself, and it is not surprising that overall taxable profit on the average UK farm has collapsed.

UK farmers got into this high production-low profit trap by only looking at the margins. With marginal analysis, the price of a kg of concentrate is justified by the theoretical milk production response. This ignores the fact that the concentrate is being substituted for a resource already paid for that is only one seventh of the price.

It turns its back on the growing season and focuses on the winter. Grazed grass becomes a bonus while silage becomes a priority. The high cost system has all cows milking all year and makes a low profit margin from milk. It requires:

&#8226 Huge emphasis on silage quali- ty and quantity.

&#8226 Capital intensive buildings and machinery.

&#8226 Slurry management.

&#8226 Hard work 365 days.

&#8226 Large debts.

By contrast a low cost system concentrates on producing milk while grass grows. Grazed grass is the priority, while silage is harvested only if it is surplus. It requires:

&#8226 Good roads but minimal other capital investment.

&#8226 Multiple access to paddocks.

&#8226 Critical autumn grass manage ment.

&#8226 Planning and flexibility.

&#8226 A good raincoat.

Grass grown on the farm and all the grass required at a cow to the acre just about balances. Why then are concentrates going in as well? The answer is to offset the fact that silage is not as good as grass.

Clearly the art is in getting as much grass as possible directly into the bulk tank via the cow, rather than via a depreciating forage harvester and silage pit, through the cow in a depreciating shed nestled atop a depreciating slurry pit.

New Zealand farmers have long known that the weather is not the sole determinant of the amount of grass on the farm in spring.

Profit gains need not be confined to seasonal milk production. For a herd on a winter milk contract, significant cost reductions can be achieved by applying the same principles in the autumn to extend the grazing season.

The seasonal system, however, enjoys the most significant gains in terms of simplicity, minimal variable costs, and eventually lower fixed costs, such as labour and housing.

One of the biggest misconceptions is that farmers who graze all year round can only do it because their farms grow grass all winter.

The grass the New Zealand or Irish farmer grazes in early spring is autumn saved pasture, not winter grown grass. They then achieve better spring growth because they have grass on hand. &#42

NZ dairy consultant Leonie Foster, who is working in Ireland… UK farmers have got into a high production – low profit trap by only looking at marginal figures.

AGRITECH ROADSHOWS

Leonie Foster will speak at a series of New Zealand Agritech Profit from Grass Roadshows which will run from Apr 20-29.

For details contact Tom Daly, New Zealand Trade Development Board (0171-9730104).

* Leonie Foster is a New Zealand dairy consultant working in Ireland for dairy co-op Golden Vale to help farmers increase their profits by making more better of grazed grass. She was also a consultant with the New Zealand Dairy Board for five years, managing discussion groups throughout the country.


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