Dairy Profits Dip, Producers Prepare for Tight Season

AUSTRALIA - Mixed seasonal conditions and increasing costs have seen Victorian dairy farmers post lower returns in 2011/12 with average earnings before interest and tax (EBIT) dipping more than A$60,000 compared to the previous year, according to an annual Dairy Australia and Department of Primary Industries survey.
calendar icon 15 August 2012
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The 2011/12 Dairy Industry Farm Monitor Project has revealed surveyed dairy farmers posted an average EBIT of A$228,305 for the past season compared to A$290,456 in 2010/11, despite a solid closing milk price of A$5.52 per kilogram of milk solids. The survey also revealed the average return on assets was 5 per cent in 2011/12, compared to 6.2 per cent previously. However, it is still a better result than 2.2 per cent in 2009/10. Average feed, herd and shed costs for those surveyed increased about A$62,000, with feed the biggest impost for farmers in each region.

The sixth annual Farm Monitor Project collected data from 74 farms across Victoria’s north, south west and Gippsland. Participants were selected from a range of farm and herd sizes and geographical locations within each region. The project is a financial and comparative analysis of dairy farms providing profitability and production data which identifies the key drivers of farm performance. Dairy Australia Managing Director Ian Halliday said profitability for those surveyed across the three regions varied as a result of the diverse seasonal conditions.

“In the North the good rainfall and water allocations helped farmers to increase milk solids production by 192 kilograms per hectare and reduce their cost of production by 10 per cent, while in the South West the dry spell caused costs to rise by 12 per cent as farmers spent more on purchased feed and labour,” Mr Halliday said.

“Surveyed Gippsland farmers experienced a 9 per cent rise in overhead costs mainly due to increased imputed labour costs. This led the average return on assets for Gippsland farms to fall from 6.1 per cent in 2010/11 to 4.4 per cent 2011/12.”

The top 25 per cent of regional participants recorded earnings before interest and tax of A$1.90 per kilogram of milk solids and A$1,845 per hectare and average return on assets of 10 per cent.

In light of the reduced returns and the lower farmgate milk price for this season, Dairy Australia has developed the Tactics for Tight Times campaign to help farmers work through their current management decisions around cost effective production.

Mr Halliday said despite a drop in income, Victorian dairy businesses were in a stronger position to approach challenges than they had been in recent years.

“The milk price drop for this season has not been a surprise for Victorian farmers, but we understand the coming 12 months will be a real challenge and so we want to help farmers be on the front foot on how to tackle the financially tough season ahead,” he said.

“Analysis indicates that for 2012/13 many dairy farmers will be under pressure with on farm cash flow and profitability,. Levels of both long and short-term debt have increased over the past few years, and will also impact on cash flow.”

The Tactics for Tight Times initiative is being co-ordinated by the Regional Development Programs (ie Murray Dairy, GippsDairy and WestVic Dairy) and will involve a number of workshops in each region where farmers will have access to consultants and DPI extension officers as well as peers who have implemented successful farm plans to manage through difficult times.

“There will be a focus on maximising home grown feed, considered concentrate feeding levels, smarter nitrogen use, strategic fertiliser decisions and implementing ways to reduce energy costs,” Mr Halliday said.

“It’s really important our farmers know their own farm system and understand their individual situation and options.”

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