Sunday, 13 April 2014

What is Your Dairy farm Profit?

What is dairy farm profit? Is profit a dirty word? Too few New Zealand dairy farmers know their profit? Discussion groups rarely discuss or compare profit. Few farmers financially benchmark. Why do farmers and consultants continue to use profit per hectare to compare farms?


Non-Cash Adjustments include changes in feed & livestock inventory, inclusion of Family labour & Management and depreciation. See NZDairybase

Why do so few NZ dairy farmers know what their profit is? Profit per hectare is not enough, although every farmer should calculate Profit/hectare. 

Operating Profit Margin (OPM) is a better measure of financial efficiency. Dairy farms should aim to have a consistant OPM of greater than 40% i.e. Operating Expenses (which include Family Labour adjustment and depreciation) not to exceed 60% of Gross Farm Revenue (GFR). 

Return on Equity (RoE) and Return on Assets (RoA) are very important profit metrics.

In NZ there is a trend to more intense farming systems (more System 4 & 5 and less System 1 & 2). New Zealand farmers have a comparative advantage in growing pasture. So pasture efficiency & grazing management remains a core fundamental (in NZ) and is directly linked to profitability. NZ does not have a comparative advantage in TMR, cereals or purchased feeds. The choice of farm system, high or low input, TAD or OAD milking, is a personal decision.

System 1 - All grass self-contained, all stock on the dairy platform No feed is imported.  No supplement fed to the herd except supplement harvested off the effective milking area and dry cows are not grazed off the effective milking area.

System 2 - Feed imported, either supplement or grazing off, fed to dry cows Approx 4 - 14% of total feed is imported. Large variation in % as in high rainfall areas and cold climates such as Southland, most of the cows are wintered off.

System 3 - Feed imported to extend lactation (typically autumn feed) and for dry cows Approx 10-20% of total feed is imported.  Westland - feed to extend lactation may be imported in spring rather than autumn.

System 4 - Feed imported and used at both ends of lactation and for dry cows  Approx 20 - 30% of total feed is imported onto the farm.

System 5 - Imported feed used all year, throughout lactation & for dry cows Approx 25 - 40% (but can be up to 55%) of total feed is imported.

*Note: Farms feeding 1-2kg of meal or grain per cow per day for most of the season will best fit in System 3.

OneFarm Research has shown that the difference in profitability between systems is insignificant. Operating Profit was a poor tool to compare different systems because it doesn’t take into account the additional capital invested as farms intensify.  

Farms must be profitable to be sustainable in an increasingly turbulent world. Sustainability in dairy farming includes being environmentally, people and animal welfare sustainable as well as profitable. 
Which farming system you chose for your business depends on what you most like doing, the lifestyle you wish for your family and your attitude toward risk.

 All farms face both environmental risks e.g. droughts and market risks e.g. milk price or world cereal prices.

There are both upside risks (e.g. opportunities like increased milk price or excellent grass growing season) and downside risks (e.g. negative impacts like milk price dropping, droughts or interest rates rising) in agriculture. The farm businesses that capture upside risks/opportunities are different from the farm businesses that best cope with adverse or downside risks. 

The most important Key Performance Indicators (KPIs) are Operating Profit Margin (OPM) and Milk Solids per hectare.

Resilience is a prerequisite for achieving sustainability in a turbulent environment. There are five critical factors. Read the OneFarm: Dairy Farm  Business Resilience Research  

1. Technical efficiency….Milk Solids per hectare and per person.

2. Financial efficiency ….OPM and higher Return on Assets (RoA).

3. Available Farm Cash Surplus….more available discretionary cash or free cash…Cash is King.

4. The ability to manage debt servicing capacity…always having sufficient funds to meet debts.

5. Farm cost control is critical.

In NZ, System 3 farms which are neither high nor low input tended to be more resilient over different seasons and had greater ability to flex with the season.

Profit alone (or worse still at any cost) should not be sole purpose for being in business. Rather it is an essential to enable farmers to achieve their personal & family goals. A balanced business scoreboard is the target not just profit. Increasingly society will impose a ‘license to farm’ on all farmers that will include environmental, animal welfare and people sustainable objectives. 

What is your business mission or vision? Is your farm business vision written? What are the values that drive & steer your farm business?

Much could be learnt from the leading Maori Trust farms in New Zealand that have a “Quadruple Bottom Line” business objective of “Culture, People, Environment and Profit” not solely a profit motive that is driven by self-interest and an individual approach.

Tuesday, 8 April 2014

"Agriculture, science …. And stuff like that"… A New Blog

"Agriculture, science …. And stuff like that"

Hello I’m Jill Walcroft from AgResearch NZ. I’ve been invited to write this blog.

“Agriculture,science and stuff like that”  is a new blog created by AgResearch scientist Jill Walcroft as part of an action research project investigating the ins and outs of science communication with social media.

I believe that science ideas are worth exploring and discussing, especially science to do with land. I feel that sometimes science is not very accessible.  So I’ve given myself a challenge, “can I present the stories in such a way that people’s eyes don’t glaze over after the first sentence”.  I am also keen to understand the reasons scientists may or may not see social media as a good avenue for communicating their scientific findings, and to hopefully find ways of enabling scientists to uptake up these technologies with some confidence.

Check out the first three stories I have posted.

Explore the blog in general at

Help with the study by giving me your opinion.  Please answer the 10 question survey after you read any of the stories.  Also - Comment on the blog if you’d like to share your ideas with other readers.

Thanks Jill

Monday, 21 October 2013

Farming for the Future….Do we support Innovation by Leading Farmers?

Farming for the Future….Do we support Innovation by Leading Farmers.

Craige & Roz MacKenzie, are the Canterbury Farm Environment Award winners 2013. Very deserving winners....Congratulations.
The MacKenzie family (including daughter Jemma) are one of the most innovative, creative, Push-The-Boundaries, Farm & Research businesses I’ve ever seen. 

Andy MacFarlane (MacFarlane Rural Business) last week chaired a very successful Ballance Farm Environment Award fieldday at Greenvale Pastures farm near Methven in Canterbury, New Zealand.

 Greenvale Pastures Ltd Mission Statement – “Farming for the Future” That was our mission statement when we started out in 1994 and continues
today. Our aim is to be the best at what we do, maximizing
production and profitability while ensuring that the systems and
resources we use show an excellence in total farming practice
and that the methods we use have good scientific backing and are
sustainable for our family, farm and the environment.
We believe that:
• The environment in which we live is our legacy
• water is a valuable multi-use resource
• attention to detail is what gives us an edge
• understanding of costs is essential
• knowledge is the key.

The NZ Ballance Farm Environment Award regional competition rewards farming families who are working hard to minimise the environmental footprint of their farm. This is to be applauded as it identifies some imaginative &  innovative farmers who in their own right are very effective researchers and implementers of world best practice for the environment. Last week we saw some very advanced smart technology being used to reduce water use, mimimise fertilizer and maximise production for a range to crops & dairy.

I was excited, I could see a future through Craige & Roz’s vision and I can imagine the likely impact both in Canterbury and across New Zealand.

 However on the flight home I felt slightly gutted and left wondering about innovation in NZ and NZ innovators. Are we in New Zealand fully supporting these leading farmers who are at the forefront of Agricultural Science innovation? The research that the entrepreneurial MacKenzie family are energetically leading could not realistically be completed by a NZ institutional research facility.
Where are the R & D tax incentives for farms like Greenvale Pastures???

New Zealand has been constructively criticized by Shaun Hendy and Paul Callaghan (in their book “Get off the Grass”) regarding the lack of innovation or support for innovation.
The country’s lack-lustre economic performance following the free-market reforms of the 1980s is often cast as a paradox: why haven’t sound economic policies led to growth?  Shaun Hendy and Paul Callaghan argue that the New Zealand ‘paradox’ can be explained by our struggle to innovate. On a per capita basis, OECD countries on average produce four times as many patents as New Zealand. Why is this? What determines a country’s capacity for innovation?” Read about it
New Zealand struggles to innovate.
In addition to the 200ha Arable farm there is an interest in a 1200 cow 326ha dairy farm. 
Some of the smart technology we were privileged to see included :- Profit mapping, Electromagnetic EM Variability(soil moisture management), Variable Rate Base Fertilizer, Lysimeter Project, Pasture Mapping with “GreenSeeker” technology, Variable Rate Nitrogen, Variable Rate Irrigation and the BioBed-managing sprayer cleanout waste. 
The list of smart technology on this farm is very long.
BioBed-managing sprayer cleanout waste

Let’s not forget the environmental concerns like pollination & the  Honeybee…..responsible for approx. $50million in honey exports but a $3 Billion contribution to all of NZ food production.

On the dairy farm Variable Rate Irrigation was saving up to 30% of water used. Sure there is a need to invest in capital smart technology but really it’s a “#No-Brainer” if there are different soil types on the farm.

Pasture Mapping w/ GreenSeeker®
�� Mapping biomass variability
�� Identify high nitrogen areas
�� Reduce or eliminate nitrogen application from high N unproductive areas
�� Keep records of pasture
�� Average rate/ha decreased
to 49kg/ha with use of GreenSeeker & VR application
�� Savings = 21 kg/ha of Urea = $19/ha

Much of the commercial technology is managed through the family business. Agrioptics  Learn about this technology 

Craige also plays a leading role in Precision Agriculture in NZ.

This was one of the best days I’ve had in New Zealand….what is slightly amusing in that I was completely out of my depth most of the day but loving the discussion!   
Thinking as I reflect that most institutional research farms could not compete and may no longer be fit for purpose. Yet they have better access to funding.

 Quite unsettling is a conviction that leading innovative farmers don’t get the support they should in NZ.If we in agriculture, are to positively impact the environment this surely must change!