State grant cushions fall in farms gross margin

12 April 2002

State grant cushions fall in farms gross margin

Studying the annual accounts has seldom been more

important than it is now for the partners at Le Mont

Hardy, as they assess the viability of their ongoing

organic conversion. Europe editor Philip Clarke reports

FINANCIAL results for 2001, which have just been presented at Le Mont Hardy, reflect a year of very mixed fortunes.

"Production wise it was not a good year," says John Lee. Cereal yields were down following an atrocious growing season, while milk yields were back due to the removal of maize from the ration.

"But 2001 was satisfactory from a financial point of view, thanks in large part to the government grant we get under the Contrat Territorial dExploitation (land management contract), which compensates for the losses during conversion when our produce cannot be sold organically."

Last year this contributed k39,850 (£24,385) to the business, more than offsetting the k23,320 (£14,275) drop in gross margin for all activities.

Overall, the farm gross margin came to around k90,000 (£55,135) and, after deducting overheads – including rent of k152/ha (£93) and wages – bottom line profit was a stable k32,775 (£20,000).

"The annual report is always important to confirm we have got our finger on the financial pulse," says Mr Lee. "But this time it is even more significant, as we assess the success of our organic conversion and verify the capacity of the business to extend the partnership to at least one of our employees."

Looking at the individual enterprises, the dairy unit achieved a seemingly healthy gross margin of k0.28/litre (17.5p), a rise of almost 3% thanks to the small price premium for farms "in conversion". Average milk price for the year came to k0.34/litre (20.7p).

"But actual milk output was down by 46,000 litres, due to lower yields (of 4950 litres/cow) and six fewer cows," says Mr Lee.

The dairy unit also took a hit in the return from livestock sales. In the aftermath of the November 2000 BSE crisis, when other member states like Germany and Spain finally admitted they had the disease, cull cow prices were down k182/head (£112) to k456/head (£279). Calf prices were similarly affected, dropping k56/head (£34) to k127/head (£78).

"Combined with this, production costs actually rose in 2001, mostly due to the k8690 (£5318) extra we spent on hay and fodder beet as a result of reduced grass yields," says Mr Lee. "This would have been worse still if we had had enough cows to fill the 395,000 litre quota."

The net result was that total gross margin for the dairy enterprise fell k10,976 (£6717).

"Having looked at the figures, it is clear we need to get production more in line with quota. There is not much we can do in the short term to lift yields, but we can retain more heifers and have already increased the area of grass by 5ha (12.4 acres) in anticipation. We now have to hope the weather plays its part in lifting output."

As for the other activities, pig production was more in line with 2000 figures. There was a problem with semen supplies last spring due to movement restrictions following a case of foot-and-mouth 35km (22 miles) away. This has created a bit of a shortage of gilts, so more, older sows were kept, but, so far, physical performance has not been affected.

Finished pig prices were up 16% at k133/head (£81) for an average 85.2kg carcass, and this helped support gross margins.

In contrast, the imputed return for cereals was down by over k7000 (£4291) due almost entirely to the lower yields. Half the 35ha (86 acre) cropped area was planted with wheat, which yielded just 3.7t/ha (1.5t/acre).

Production costs are minimal and each partner in the business is allowed up to 16ha (40 acres) before set-aside kicks in.

Including an area aid payment of k335/ha (£205), wheat achieved a gross margin of k808/ha (£495). All cereals produced at Le Mont Hardy are "sold" to the livestock enterprises for home feeding.

Generally, Mr Lee is satisfied with the latest set of financial results. "It is nice to hear from an independent source that things are still on track, especially when we are yielding so much less than our neighbours.

"The big question is what things will look like when the CTE grant runs out. We will then be totally dependent on the organic premiums. But I am optimistic that these will last. There is good demand for organic produce. And a recent course at our local agricultural college for organic conversion had to be cancelled as there were not enough people to go on it."

The continued low level of indebtedness at Le Mont Hardy also cheers Mr Lee. Borrowings equate to just 13% of turnover. &#42

Almost half the farms debt is tied up in the CAT telehandler, says John Lee. But at 13% of turnover and 5.5% interest, total borrowings are under control.

&#8226 Le Mont Hardy, a 112ha (277 acre) dairy and pig unit near Putanges in the heart of Normandy, France.

&#8226 Farmed by John Lee, in partnership with Benoit and Gilles Delaunay.

&#8226 Mixed soil types, growing 76ha (188 acres) of grass and clover, plus 34ha (84 acres) of cereals.

&#8226 Dairy herd made up of 72 Friesians, plus followers.

&#8226 Pig herd made up of 42 Large White Landrace hybrids, with 800 finishers a year.

&#8226 Dairy currently in organic conversion.

&#8226 Pigmeat sold direct to consumers.

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