Profits for dairy farmers have recovered in 2020 after a fall in the previous year, according to the Old Mill Milk Cost of Production Report.
The report, conducted by rural accountant Old Mill and the Farm Consultancy Group, found that dairy farm profits averaged £233/cow in the year to 31 March 2020 – up from £141 the previous year.
However, there remained a big gap between the top and bottom producers, with the top 10% averaging a profit of 12p/litre compared with a loss of 5.48p/litre for the bottom 10%, with 24% of the sample not breaking even.
“This is a big reason why 2.5% of producers are ceasing production annually,” said Gerard Finnan, farm business consultant at the Farm Consultancy Group.
“At the current rate, a lot of the bottom 10% could be gone in four-to-five years’ time, unless they change their management decisions.”
This is the third year in a row that income has remained stable, with both yields and prices seeing little change on the previous season.
Though the average milk price remained around 31p/litre, the subsequent challenges presented by COVID-19 meant a number of milk buyers instructed suppliers to cut production or dispose of milk.
“This resulted in some producers capitulating, and though the distressed milk market is now behind us, the report highlights how finely balanced supply and demand is,” said Dan Heal, rural accountant at Old Mill.
The top 10% of producers have once again outperformed the bottom 10% by over £1,000/cow, despite income levels only being £142/cow higher.
Reducing costs has been a major driver for numerous producers over the past year, with producers cutting costs by an average of £124/cow, explains Mr Finnan.
However, the effectiveness and impact of cutting costs is starkly apparent between the top and bottom 10% of producers.
“Cost efficiency is about much more than requesting suppliers to reduce their prices,” said Mr Heal.
“It is looking into the expenditure of the business and adapting to suit the farm or milk contract. Or making timely investments if they will give a return.”
After the drought during the 2018/19 season, the favourable growing conditions of 2019 resulted in a £97/cow drop in purchased feed costs, said Mr Heal.
Producers also spent less on seeds, fertilisers and sprays, with the weather allowing for the production of large quantities of quality forage.
“However, the unpredictability of the weather does mean it is an aspect that is much harder to plan for.”