Dairy farmers invest to improve profits, says Old Mill

South West dairy farmers continue to expand and enjoyed a 15% jump in net profits this year, according to a survey by accountant Old Mill.

The annual benchmarking survey of dairy clients revealed that milk production had increased for the fourth year running, to 144,307 litres per farm ’ 10% up on the year. Average milk prices rose by 0.82p/litre, which, combined with yields of 7349 litres per cow, boosted overall milk turnover by 12%.

Producers continued to grow their herds, with the average herd size now at 196 cows ’ up 8% on last year. ’This comes as no surprise, as the national herd count fell by 405 herds over the past year, to just 10,851 in June,’ said associate director Richard Haines.

’Average herd sizes are increasing to offset this decline, allowing milk production to remain stable, at around 1.1bn litres in August. However, producers are having to spend more to produce this milk, with feed costs rising by 12% this year. Vet and insemination costs have jumped by a massive 25%, to over 1.9p/litre, as producing more milk from larger herds is impacting on herd health.’ Ongoing problems with TB and Johne’s Disease were adding to this cost burden.

Depreciation costs increased for the fourth year running, and were now 63% higher than in 2008, he added. ’This is a reflection of increased machinery costs, together with those farmers who are remaining in the industry investing for the future, particularly where they have to comply with Nitrate Vulnerable Zone regulations.’

Overall, net profits had risen by 15% to average ’72,500, said Mr Haines. ’However, this is below both 2008 and 2009; a reflection that overall farm overheads continue to rise.’

The difference between higher and lower performing farms was also vast, with a number of farms still making significant losses before taking the Single Farm Payment into account. ’This emphasises the need for ongoing support and fair milk prices, without which more farms are bound to quit.’

Processors were slowly passing on increases in milk prices, so with good cost control and herd management, net profits should rise again in the coming year, he added. ’With capital allowances set to decrease in April 2012, producers should monitor potential profits and act now to minimise tax charges and keep as much money in the business as possible.’