Dairy Costs – Are You Paying Attention in the Right Areas?

Annually we produce the Cost of dairy production (COP) report in October in association with Old Mill Accountants.  When you have a database of dairy farm businesses financial information from across a specific region, i.e., the southwest, the data can be analysed with some very accurate and similar trends established.

One such area of analysis which I am always interested in is the Cost of Doing work (CODW) which is an amalgamation of all labour, power and machinery costs on the dairy farm.  It makes up 38% of total dairy costs but is an area that is accepted as a fixed cost and is not looked at in any detail together.  It is impossible to compare contracting costs between farms in isolation as some will do more work with more of their own machinery whilst other farms will have very little machinery and employ a lot of contractors.  Interestingly though there a variance in total average costs between systems of 6.3ppl, but the range in the average CODW is only 1.61ppl.

When all systems collectively are analysed as one database and ranked by total costs of production, the farms with the lowest costs of doing work have a 75% chance of also having the lowest costs of production, irrespective of the system.  This 75% chance applies whether analysed on a £/cow or a ppl basis.  This is a similar outcome I have when I have looked at this historically whether in smaller discussion group datasets or larger groups like for this COP report.  The report can be downloaded  by clicking here

So, this is telling us that if you focus your energy on looking to reduce your CODW in your business you have a 75% success rate of influencing your total costs, which only make up 38% of the total.

We can all relate to altering feed and fertiliser rates, and other variable costs etc., which we can change with ease but totally neglect the large lump of costs that tie up huge amounts of financial and human capital.  Maybe we (advisors and farmers struggle to look at them as a whole)?  By treating them in isolation is meaningless.  Yes, it requires major changes to sell some machinery, make labour redundant and use more contractors or vice versa, but we need to start looking at this large CODW and paying more attention to how we can manage it better and reduce it.  It is key to your overall level of costs.

We come across some farmers feeding 500 cows without a mixer wagon and getting similar performance to 200 cow herds being TMR fed.  Everyone focuses on the cost of the purchased feed, but what is the cost of feeding it all out?

Firstly, you need to work out what your CODW is and then benchmark.  March 23 CODW was 16.2ppl average.  If you need help to highlight your areas of strength and where you need to improve within the collection of costs that make up CODW, contact Gerard at gerardfinnan@fcgagric.com or Tel: 07976 426420 for more detailed analysis.