The latest figures from Promar's Farm Business Accounts for the year-ending March 2017 reveal that profit after depreciation for the average dairy farm in the sample fell by 20 per cent to £43,404, compared to the year-ending March 2016.
Reporting from the agri-food consultancy's annual data briefing, Nigel Davies, Promar's National Consultancy Manager, identifies that a big factor in this fall was a decrease of £90 per cow at gross margin level.
However, he remains more optimistic about the March 2018 year-end outlook, which report improved profitability for most. "The sustained milk price increases in the year to date are feeding through to notable improvements in gross profits so far into the year," said Mr Davies.
He went on to add that a comprehensive approach to financial performance and planning remains key, as gains this year are likely to be diluted by increased overheads and inflationary pressures, and post-March 2018, milk price volatility is likely to continue.
Mr Davies also encouraged producers to review every aspect of their business to drive efficiencies and ultimately increase profitability pointing out: "This is something that the top 25 per cent practice continually and one that with help, the majority of farmers can also employ.
"The data identifies huge disparities in the performance of the top 25 per cent of the sample. For instance, the operating profit per cow is more than double compared to the average, at £885 per cow, this amounts to a staggering difference of over £90,000 in resulting profit for an average sized business in the sample."
With many producers driving economies of scale, Mr Davies warns that: "Scale is important, but critical to profitability is a need to continually improve technical efficiencies across the business.
"Interestingly the top 25 per cent have eight fewer cows than the average, and their profitability is also not primarily linked to their milk price, which accounts for just £88 per cow.
"Yield helps, but not at all costs", adds Mr Davies. "Reviewing gross margin is key, for instance the top 25 per cent reported feed costs of 0.33p per litre less than the average, and marginal improvements in herd fertility, culling rates and death."
It's not just about focusing on the milking herd, said Mr Davies. "Management of grassland and forage crops gives the top 25 per cent an £18 per cow advantage. Better young-stock management can add a significant £28 per cow advantage too."
He went on to add that overhead costs shouldn't be viewed as "fixed". "A striking £216 operating profit per cow difference in the top 25 per cent comes from efficient overhead cost management, which is the equivalent of 2.53p per litre.
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