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4.4 PARTICIPANT LEAGUE TABLES

4.4.1 GROSS MARGIN IN £/COW AND PPL

The tables below show the participants ranked by their dairy enterprise gross margin in £/Cow and ppl. Each table shows the performance of each unit with a breakdown of the major factors contributing to the income generated. The total variable costs incurred are also shown. The average performances of the whole sample, the top third, bottom third and top third with the three organic units removed are shown at the bottom of each table.

Table 4.13 - Participants Ranked by Gross Margin (£/Cow)

Table 4.14 - Participants Ranked by Gross Margin (ppl)

The first point to note is that in both tables, the three organic units have the highest gross margins out of the sample of 50 participants.

On a ppl basis there is a clear gap of 2.43ppl between the highest gross margin of the conventional participants and the lowest gross margin of the organic participants. This is due to the much higher milk price received for organic milk which averages 26.36ppl across the three organic participants. The next highest milk price received by a conventional participant was 21.98ppl, some 4.38ppl lower than the average organic milk price received. The average milk price received by the conventional participants was 19.10ppl some 7.26ppl lower than the average organic participant received.

On a per cow basis, the gap between the organic producers and conventional producers is much smaller, with the difference between the lowest organic participant and the highest conventional participant being only £42/cow.

The three organic producers each operate at different levels of intensity of 8,400, 7397 and 5,896 litres of milk being produced per cow respectively. Gross margins per cow and cost structures follow the trend of yield but the participant with the highest gross margin (DS10) is less efficient than the other two producers with a gross margin percentage of 66% whilst the other 2 have a much more efficient ratio of 73%.

Those conventional participants that came closest to achieving the gross margins per cow that the organic participants achieved displayed both high yield (around 9,000l) and high gross margin (55% to 70%).

Returning to the conventional participants, on a ppl basis, the order of participants in the table followed closely the gross margin percentage. In those cases where this order differed, it was most often due to milk price being significantly higher or lower than those participants with similar gross margin percentages. Replacement costs also affected position in the league table with participants DS54, DS37, DS50 and DS11 all having replacement costs of more than 3.00ppl.

Calf output had less of an effect on gross margin generally but in the case of DS2 the relatively high calf output of 2.01ppl did affect position in the league table but, as milk price was only 17.19ppl, the milk price had a larger influence on position in the league table

Milk yield had little effect on position in the ppl league table as it was efficiency of production that defined position. This is demonstrated by there being almost no difference in milk yield between top and bottom third participants.

Top third participants were able to generate 4.45ppl more gross margin than bottom third producers even after the better performing organic performers were excluded. Of this 4.45ppl, 3.18ppl was due to lower variable costs. The next largest factor contributing to position in the league table was milk price where there was a 1.18ppl difference between the top third (organic excluded) and the bottom third participants

In contrast to the ppl figures, a high gross margin percentage and high milk price do not necessarily mean a high gross margin per cow although generally those with higher gross margins are nearer the top of the table. With gross margin per cow, the yield of milk per cow also becomes an important factor so that with two participants of the same gross margin percentage and milk price, the one with the higher yield will appear higher in the table. This the reason that DS59 appears above DS7 in the table despite both participants having the same gross margin percentage and DS59 having a milk price of only 18.30ppl compared to 19.80ppl for DS7. It is the higher yield of DS7 that makes the difference: 9,433l as opposed to 8,903l for DS59 giving milk sales of £1,727/cow as opposed to £1,656.

The top third units excluding the organic participants generated a gross margin of £869/cow compared with the average of £699/cow and the bottom third participants of £452/cow. Thus top third conventional participants generated £417 more gross margin per cow (92% more) than the bottom third participants.

Top third participants produced 1,434l of milk more per cow than the bottom third of producers and did so spending £61 less on total variable costs. At the average milk price of 18.50ppl this 1,434l of milk was worth £265/cow accounting for approximately 63% of the £417 difference between top and bottom third participants.

Milk price for a top third participant (excluding organic) was 1.2ppl more than for a bottom third producer giving a £92 difference on milk price alone. Thus approximately 22% of the £417 variance between top third and bottom third can be attributed to milk price.

Top third participants spent £61/cow less producing their milk than bottom third participants accounting for 14.6% of the £417/cow difference.

Thus, milk yield was the most important factor contributing to position in the £/cow gross margin league table.

DS38 who was had the highest conventional gross margin was able to sell his milk for 19.40ppl, 0.90ppl more than the conventional top third average. He produced 9,814l of milk per cow, 1,558l more than the conventional top third average and spent £648/cow in variable costs compared to the average top third of £606/cow.

In contrast, DS32 produced the highest yield in the sample: 11,630 l/cow but was ranked only 20 ^th in gross margin per cow terms. This was because his milk price was only 16.90ppl, 1.60ppl less than the top third conventional average and spent £1,138 per cow achieving this yield, £532 more than the top third conventional average. His gross margin percentage was therefore only 40%.

4.4.2 VARIABLE COSTS IN £/COW AND PPL

The tables below shows the participants ranked by their dairy enterprise variable costs in £/Cow and ppl. Each table shows the performance of each unit with a breakdown of the major factors contributing to the variable costs incurred. The average performances of the whole sample, the top third, and the bottom third are shown at the bottom of each table.

Table 4.15 - Participants Ranked by Variable Costs Incurred (£/Cow)

Table 4.16 - Participants Ranked by Variable Costs Incurred (ppl)

Total variable costs range from £216/cow to £1,138/cow. The organic participants: DS55, DS48 and DS10 are ranked 7 ^th, 14 ^th and 32 ^nd respectively. In contrast to output where the organic participants were the three highest ranked participants, there appears no difference between the cost structure of the organic units when compared to the conventional participants. Therefore, there has been no separation of the organic/conventional participants.

Top third participants (in terms of variable costs) had a total variable cost of £416/cow compared to the average of £646/cow and £862/cow for the bottom third participants.

The chart below shows the relationship between milk yield and total variable costs: -

Figure 4.1- Scatter Diagram of Milk Yield against Total Variable Costs in £/Cow

Scatter Diagram of Milk Yield against Total variable Costs

As one would expect there is a clear relationship between increasing milk yield and increasing variable costs.

The following chart compares the variable cost analysis of the average, top third and bottom third participants taken from the £/cow figures.

Figure 4.2 - Comparison of the Variable Cost Analysis of the Average, Top Third and Bottom Third Participants

As the chart shows, the proportion of each cost is very similar between the average, top third and bottom third group.

The conclusion is that the despite significant differences in individual performance, when collated, there is little difference between the participant groups. However, the bottom third do show a slight proportional increase in concentrate costs and forage costs offset by a decrease in vet & med costs. Given that these bottom third participants are actually the higher yielding herds, one would have expected a greater increase in concentrate costs and decreased costs in the other areas. This suggests that the higher yielding participants are more effective in their cost control especially with regard to concentrate costs but manage their grass more intensively.

When total variable costs are examined in ppl and compared to milk yield (fig 4.3 below), the relationship is not as clear as with £/cow. This is because many of the variable costs are related to the maintenance cost of keeping a dairy cow. Thus the participants with larger yields appear to have a smaller relative increase in cost for each additional litre of milk produced.

There also seems to be a wide degree of variation in the feed costs in ppl between participants. For example, DS2 is able to produce 7,879l of milk and has feed costs of 4.99ppl and forage costs of 1.47ppl. DS9 on the other hand produces 7,952l of milk but has feed costs of 12.34ppl and forage costs of 2.59ppl. The relationship between feed, gross margin and milk yield is discussed in more detail on the following pages.

Figure 4.3 - Scatter Diagram of Milk Yield against Total Variable Costs in ppl

The tables below show the relationship between gross margin, milk yield and the major variable costs.

Table 4.17 - The Relationship between Gross Margin, Milk Yield and Variable Costs Expressed as £/Cow

Table 4.18 - The Relationship between Gross Margin, Milk Yield and Variable Costs Expressed as ppl

The tables above show the participants in order of gross margin performance once more but, with the major variable costs now included.

This shows that the top third participants (with the organic participants excluded once more) produced 8,256l of milk compared to the bottom third participants' average of 6,822l and were able to do so with feed, forage and bedding costs of £474 per cow as opposed to £524 a saving of £40 per cow.

In ppl terms the top third participants produced 7,675l of milk compared to the bottom third participants 7,530l. Feed, forage and bedding costs were 5.27ppl and 7.66ppl respectively, a saving of 2.39ppl or 45%.

The participants with the highest gross margin in ppl terms do appear to have the highest milk yields, but it is a marginal difference with the variation between top and bottom third being only 145 l/cow. However, in gross margin/cow terms, the larger herds are more efficient with an increase of 1,434l for the top third participants over the bottom third participants.

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