‘Top 25% of dairy farmers get £725 a cow more’

The top 25% of dairy farmers are making £725 more a cow compared with the bottom 25%, a farm business survey has highlighted.

Researchers from Rural Business Research at Cambridge University conducted a survey across 300 English dairy farms in 2013-14.

They found that despite similar variable costs between the two groups surveyed, the top 25% of dairies showed a bigger variation in output, which led to a huge difference in gross margins.

The best performers made a gross margin of £1,620 a cow compared with the worst at £895 a cow.

While the high performers did receive a slightly better milk price, on average, of 1.3p/litre, when researchers delved deeper they found the more profitable dairies had increased outputs.

• On average the top 25% of dairies produced 1,800 more litres of milk a cow with an average yield of 8,733 litres a cow a year
• They also achieved £32 more a head for calves
• Farms in the top 25% were spending more on forage production (£25/ha more was spent on fertiliser) but they were getting more milk from concentrates
• Top-performing herds spent only 8.6p/litre on feed compared with 11.1p/litre among lower margin herds
• Top herds actually spent £14 more a cow on vet and medicine costs but their replacement costs were £24 lower a head.

See also: Focus on milk from forage boosts gross margins

The researchers also ran figures through their “projections calculator” for 2016 to see how each group coped under deteriorating milk prices.

Based on a milk price of 24p/litre, even with a 2.5% increase in milk yields and lower input prices, average gross margins fell by £438 a cow in the higher group and £283 a cow in the lower group, with the gap widening by between the two by £570 a cow.

Researchers said with no indications of imminent price increases it was paramount farmers understood their costs and return.

Rachel Lawrence, from Cambridge University, told farmers at the UK Dairy Day the big difference separating the top-performing farms from lower performing farms was productivity.

“You can do 12,000 litres a cow but if the last 2,000 litres are losing you money what is the point?”
Oliver McEntyre, Barclays

“The top 25% of dairy farmers achieve a 45% higher gross margin. They are spending less on feed but they are getting more milk from it.”

She said another key difference was business mindset, adding: “The top 25% of herds understand what they are spending and what the return has to be.”

Oliver McEntyre from Barclays said dairy farmers typically were driven by yield without focusing on how much of that was returning a profit.

He said that had to change, adding: “You can do 12,000 litres a cow but if the last 2,000 litres are losing you money what is the point?”

He said benchmarking against other businesses held the key to improvement.