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Important figures and calculations every farmer needs to know

Calculations given by Rachel Chamberlayne, senior manager of business tools, with commentary from Mark Topliff, lead analyst, both in AHDB’s farm economics team.

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Important figures and calculations every farmer needs to know

Full economic net margin

 

Net margin is used to pay for loan repayments, tax and capital expenditure.

 

It is the ultimate measure of the farm’s ability to reinvest, grow and attract a new generation of staff and ownership.

 

Full economic net margin could be considered the ultimate day-to-day KPI to which all others contribute.


It has to be positive, or business change may be required.

 

Calculation: Income (sales/transfers of what is produced, valuation changes, other production related income, but not subsidies) minus all cash costs, value of transfers in (e.g. feed, animals, muck, straw), depreciation, value of all unpaid labour and rental value of owned land.

Full economic cost of production


Full economic cost of production is a key driver of profit – knowing your business costs is vital.


It allows farms of different and similar systems to be compared. By setting and achieving a low target for total costs, farmers will become more resilient to market volatility and periods of low payments.


Calculation: Total of all cash costs (total livestock purchases, purchased feed and forage, short-term keep, fertiliser, seeds and sprays, vet and medicines, breeding, bedding, sundries, paid labour, machinery repairs, spares, tax and insurance, machinery hire and contracting, electricity and fuel, building repairs, rent, bank charges, water, telephone, general insurances, professional fees and miscellaneous) plus value of transfers in (e.g. feed, animals, muck, straw), depreciation, value of all unpaid labour and rental value of owned land.

 

This can then be divided by a factor to suit you, e.g. per hectare, per tonne, per kg, or per litre.

Whole farm return on tenant’s capital (%)

 

Return on capital is a useful measure of business performance and links both the performances of the balance sheet and the profit, with the loss account.

 

It is an indicator of the business’s ability to generate income. If the business struggles to meet the return on capital targets, it could indicate that it is over capitalised
for its size and/or under-performing in trading.


Calculation: Income minus full economic cost of production excluding unpaid labour to give the net margin, divided by tenant’s capital, multiplied by 100 to give a percentage.


Tenant’s capital is the value of assets which a tenant would traditionally remove/own at the end of a tenancy (i.e. land or buildings are not included) but the calculation should be done by owner-occupiers too.

Overheads as a percentage of income


Overhead costs are one of the largest sources of variation in the cost of production.


Labour, power and machinery are all inter-related, and therefore it is important to measure overheads in detail and benchmark where the best farmers are, find detailed areas to focus on and set targets to lower the cost base.


Collecting this data and setting SMART targets (Specific, Measurable, Attainable, Relevant and Timely) help farmers assess their business overheads and improve.

 

Calculation: Overheads as a total of cash (paid labour, machinery repairs, spares, tax and insurance, machinery hire and contracting, electricity and fuel, building repairs, water, telephone, general insurances, professional fees and miscellaneous) and non-cash (machinery and buildings depreciation and value of unpaid labour (£30,000/full-time equivalent is a good place to start), divided by income, and then multiplied by 100 to give a percentage.

Figures for specific enterprises

DEPENDING on your enterprise(s) you will also need to be able to calculate more specific figures to get a deeper understanding of your business.


Here are the main calculations AHDB’s farm economics team recommends for each enterprise.


For further explanation, including calculations and what is considered ‘good’ and ‘average’, find out more about AHDB’s benchmarking scheme at fginsight.com/AHDB.

 

 

Block calving dairy


• Milk solids output (kg/hectare)
• Milk yield from forage
• Cows and heifers calved in

first six weeks (%)


All-year-round calving dairy herds


• Pregnancy rate (%)
• Age at first calving (months)
• Dairy purchased feed costs

(pence per litre)


Cereals and oilseeds


• Seed costs (£/tonne)
• Inorganic fertiliser costs (£/t)
• Crop protection costs (£/t)


Potatoes


• Nematicides costs (£/t)
• Storage costs (£/t)
• Diesel usage (l/ha)


Beef sucklers


• 200-day weaned calf weight

as percentage of cow weight
• Age at first calving (months)
• Cows and heifers calved in

first six weeks (%)

 

 

 

 

 

Beef finishing


• Daily liveweight gain (kg/day)
• Cattle hitting target spec for

regular outlet (%)


Breeding flock


• Lambs reared per 100 ewes

put to the ram (%)
• Lamb losses from scanning

to rearing (%)
• Average weight at weaning (kg)


Lamb finishing


• Daily liveweight gain (kg/day)
• Lambs hitting target spec (%)


Pig finishing


• Mortality in the last month or

last batch (%)
• Vet cost per pig (last 12 months)

(£/head)
• Daily liveweight gain

(last six months or batch) (g/day)


Breeding/weaning pigs


• Pigs weaned per sow and per litter
• Average weaned piglet weight
• Vet and med costs, including

in-feed medication per sow

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