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Benchmarking your Business

2017
13
JAN

The DGCL Benchmarking Figures for 2015/16

We have recently analysed all the year end accounting information that we have collected for businesses with March 2016 year ends and updated our average and top 20% figures for benchmarking purposes. The data is derived from a mixture of long standing clients and new businesses we have started working with in the last 12 months.

 As you might expect the range in the costs per litre we see are massive. Total costs* range from 20ppl to 35ppl.  The results indicate the direction of travel needed to ensure a viable and competitive cost base.

No surprise: Our goal is for all our clients to achieve costs* of 24 ppl or less.

* Total costs expressed on a comparable farm basis, i.e. after drawings and before rent and finance

Your Data:

If you sent data in, a copy will be sent to you comparing your result to the average and top 20% clients, i.e. the 20% with the lowest production costs. Given the variation in milk price, profit per se is not a fair comparator. We can discuss these in further detail with you and the implications for the development of your business during your next consultancy visit.

Farm Benchmarking Summary:

The analysis is summarised below: 

  Top 20% ppl Average ppl
Output 28.74 30.66
Variable Costs 12.05 14.86
Overheads 12.39 14.49
Total Costs* 24.44 29.35
Comparable Farm Profit 4.30 1.31

 Here are some helpful points to consider when benchmarking your farm:

  • Profit is achieved through cost control and efficiency, not simply output.
  • Technical efficiency and effectively exploiting quality forage is vital.
  • Simple, low overhead systems are key.
  • There is a massive range of milk prices, from 19.71 – 35.50 ppl
  • Total variable costs range from 7.43 – 19.90 ppl
  • Total direct overheads vary from 11.50 – 17.88 ppl
  • Rent & finance  costs range from 0.06 – 5.63 ppl.
  • Total cost of production varies from 23.34 ppl – 37.66 ppl, almost as much variation as milk price farm:farm.

Interpreting the Figures:

Many individual costs cannot be looked at in isolation.  For instance, a farm with a high staff and machinery costs are likely to have very low contractor charges (but not always!).  And some with very high contractor charges should have exceptionally low machinery repairs and depreciation charges. These interactions are fascinating. 

When costs are in balance profits are achieved. That is why simple forage based systems tend to work very well, and high cost systems struggle

Key Benchmark Figures

When looking at your data, here are the key areas to look at first: 

  1. Feed cost per litre. There is a massive range of 4 – 11 ppl within the database.  Some of this is due to yield per cow, calving pattern and adoption of rotational grazing.  And watch out if your heifer rearing feeds are allocated to the dairy herd as feed rather than heifer rearing costs.
  2. Vet & Med costs. Around 1ppl, but some farms are nearly double this.  Is this due to yield, level of disease prevention or fire brigade treatments?
  3. AI & recording. Aaround 0.6ppl, but conception rate has a big effect here.
  4. Bedding costs will vary greatly with amount of time the cattle are housed, although a high yielding herd housing all year round can still achieve bedding costs below 1ppl.
  5. Grazing systems – considerably less.
  6. Fertiliser will vary depending upon stocking rate of the farm.  The higher the stocking rate the higher the fertiliser cost will be (but hopefully the lower the rent will be to counter it!).
  7. Seed/spray costs will vary depending upon level of maize and wholecrop grown.
    Forage variable costs.  Higher spends tend to be linked to better profits.
  8. Staff & power costs (staff, contractors, machinery repairs, depreciation and fuel) can be amalgamated to take out variation of these costs between businesses.  A total figure of around 10 - 11ppl is what we would expect.
  9. Heat and light. Anything over 0.6ppl means there is scope for savings. The range we see is over 1ppl.
  10. Farm Insurance. Normally around 0.4ppl but remember under insuring is not a good idea!
  11. Rent and finance costs vary massively depending on  land ownership and level of borrowings.  Most farm are around 2 – 2.5ppl.

Our Lowest Cost Client:

Congratulations to Jonathan Joseph and Josette Feddes for achieving the lowest costs we have surveyed this year. They have genuine costs of 20.21ppl  on a comparable farm basis. Jos & Josette operate a grazing based system with 250 cows yielding approx. 7500 litres Cows calve  in 2 blocks (12 weeks in autumn and spring). Their spend on purchased feed is low at 4ppl and vet spend just 0.36ppl.  Impressive performance on a heavy wet farm.

Jos & Josette are contract farmers for the Parry Family at Lotmead Farm, Wanborough, Swindon. They receive a monthly contract fee to provide all the staffing and machinery costs required, and a profit share at the end of the year. Josette has recently started a milk retail business selling pasteurized milk via vending machines and has been featured in the local press. Hence the excellent shot of the family!

Lotmead Farm Summary of Results 

  Lotmead ppl Top 20% ppl Average ppl
Output 21.33 28.74 30.66
Variable Costs 7.43 12.05 14.86
Overheads 12.77 12.39 14.49
Comparable Farm Profit 1.13 4.3 1.31

Jos and Josette have been at Lotmead for around 7 years and have always farmed this way. They adopted the system established by Norman Parry  and refined it; never losing sight of the importance of grazing and cost control. We congratulate them on their achievement. With costs as low as these they are well placed to generate a good profit with the increase in milk prices we will see in 2017.

Related Tags:  Farm business planning | 
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Douglas Green Consulting
Brinkworth House
Brinkworth
Chippenham
SN15 5DF
UK

t: 01666 817278
e: douglas@douglasgreenconsulting.co.uk