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1. EXECUTIVE SUMMARY
1.1 AIMS
The purpose of this study is to establish gross and net margin data for dairy farms with more than 100 cows in Scotland for the period ending 31 March 2007. The data gathered from the 50 dairy farms in the sample will then provide the basis for a technical and economic analysis of the results from a historic and comparative prospective.
1.2 BACKGROUND TO THE STUDY
The period under study, 2006/2007 can be summarised as one of continuing difficulty for dairy farmers as milk prices and margins continued to follow a decreasing trend in real terms. The average milk price at the start of the study period was 17.34ppl.
Dairy cow numbers and dairy farmers were both on a decreasing trend.
However, milk supply in Scotland was increasing as average yields and herd size increased and quota ceased to be an issue for producers as deliveries were significantly less than quota.
Cull cow prices were substantially higher than in recent history as cull cow beef re-entered the human food chain.
1.3 PREPARATION OF RESULTS
A weighted average gross and net margin was prepared for the dairy enterprise and expressed in £/cow and ppl. In addition, league tables for all the farmer participants were produced, ranking performance in terms of gross margin and total variable costs.
Weighted Average Gross Margin for the dairy enterprise was found to be£709/cow
or
9.14ppl
Weighted Average Net Margin for the dairy enterprise was found to be
£82/cow
or
1.08ppl
1.4 KEY CONCLUSIONS
- The most efficient herds were those which were able to secure higher milk prices, produce more milk per cow, and manage their variable costs effectively.
- The pursuit of one factor at the expense of the others did not result in optimum performance. For example, the herds with the highest yield or lowest variable costs did not have the highest gross margin.
- There was a large degree of variation in gross margin across the sample with herds in the bottom half of the performance table likely to be making little or no net margin.
- Fixed costs were found to range between £701/cow and £1,343/cow or 6.06ppl and 18.64ppl. Fixed cost control is therefore an extremely important factor in determining net margin.
- Recent milk price increases totalling approximately 8.00ppl occurred shortly after the end of the study period. However, this increase has been followed by further cost increases that leave only 1.60ppl surplus.
- Further cost increases are expected and the remaining surplus will disappear at some point during 2008 unless price increases once more.
- If prices do not increase then the existing trend of decreasing dairy farm numbers in Scotland will continue. This is happening anyway as milk yields increase and cow numbers drop.
- This trend is likely to be exacerbated by the high level of investment now required by many dairy farmers in order to upgrade their milking and pollution control systems in the light of years of underinvestment and increasing regulation.
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