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Performance: Challenges to plan for

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Dairy farmers will face numerous challenges in the next five years. Here is an overview of some of them and what action could be taken to survive them.

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On average, farm business turnover was made up of:

  • 47% variable costs
  • 53% gross margin
  • 28% direct overhead costs
  • 25% profit before resource costs
  • 12% total resource cost
  • 13% net profit
  • 5% of turnover from grants and subsidies

Proportioned analysis of 500 dairy farms by Promar, April 1, 2017, to March 31, 2018 (Data representative of the national dairy herd picture, with the same proportion of aligned and non-aligned milk contracts).

 


Critiquing your farm’s performance

  • Collect data and benchmark yourself against a matched dataset
  • If your net profit is below 13%, where is your money going?
  • If your variable costs are high, look at vet/medicine costs, feed and replacement rates
  • If direct overhead costs are high, look at wages, machinery, property charges, such as water and repairs on property, and administration, such as office costs and accountants
  • If resource costs are high, look at rent, depreciation and finance charges

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Labour

Challenges

  • Sourcing labour has always been a challenge for the agricultural industry
  • Today’s generation has a lack of understanding of agriculture or does not want to work long hours, so youngsters are likely to find the industry less attractive
  • Better economies in countries such as Poland and Romania mean it is no longer as attractive for migrant workers to come to the UK
  • Sourcing labour from eastern Europe is likely to become even more difficult post-Brexit

Actions

  • Become an employer of choice, so people want to come and work for you
  • Develop training programmes and make employees feel invested in so they are more likely to stay
  • Adopt technologies such as parlour software, automated heat detection aids or robot milkers to
    make staff’s jobs easier and attract tech-savvy young people
  • Think differently about how you source labour; look outside of agriculture and use social media

Supply chain

Challenges

  • Social media; this puts everyone under the spotlight and puts farmers in the public eye and connected with consumers
  • Increasingly vocal vegan and anti-farming groups
  • Consumers increasingly want to know where their food is from and being concerned with animal health and welfare
  • Retailers linking farms with their brand reputation
  • Increasing global pressure to reduce antibiotic use in farm animals

Actions

  • Recognise that you are producing a food and think about the whole supply chain
  • Engage with your processor so you fully understand their requirements
  • Think about your farm’s image/brand; is it clean and tidy and is animal welfare optimised?
  • Open your farm gates to the public to increase public awareness and engagement
  • Make the most of everything produced on-farm, for example dairy bull calves

Evironment

Challenges

  • Environment is likely to be placed further under the spotlight post-Brexit
  • Farming regulations around reducing ammonia emissions are imminent; this is likely to include the requirement to cover slurry stores, permitting for larger dairy farms and regulations on spreading techniques
  • Carbon footprinting; farmers are under increasing pressure from supermarkets and processors to reduce carbon footprint
  • Reducing water pollution
  • Phosphate; following Holland’s move to introduce phosphate limits, the UK could follow suit and introduce phosphate vulnerable zones

Actions

  • Ensure rations are balanced effectively to maximise nutrient utilisation; protein balance is particularly important, as excess protein will add to ammonia emissions
  • Think about home-grown protein and reducing reliance on bought-in soya, which adds to carbon footprint
  • Consider ammonia emission when designing or altering buildings
  • Be sure to access grant funding when it comes in to help meet ammonia emission regulations

Finance and data

Challenges

  • Brexit and the reduction or removal of subsidies means all farmers need to have a handle on costs of production and focus in on profit
  • ‘Making Tax Digital’ comes into affect on April 1, 2019

Actions

  • Record and benchmark financial and technical performance so you can set targets and track improvements
  • Make the most of your farm’s milk records
  • Use data from automated fertility systems or other data capture systems
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