Key comparisons between top and bottom performing dairy farms

There are eight key comparisons between top and bottom performing dairy farms, with related case study examples from either quartile to provide real-life examples of actions farmers are taking.  

• Agricultural costs
• Agricultural output
• Contracting
• Farm area
• Stocking rate
• Mix of enterprises
• Milk price
• Agri-environment schemes

Overall agricultural costs per hectare are not significantly different between top and bottom performing farms and neither is the difference in the percentage of fixed costs, although the average is slightly lower for top performers. The share of costs attributable to fertilisers and to labour is significantly higher for top performers, whilst general farm costs and machinery costs are higher for the matched bottom performers. This suggests that it’s not the spending of money that changes the performance of a dairy farm, but what it is spent on.

Most of the spending differences here are marginal, and some not statistically significant. However, when they all add up, they make a difference. That the top performers spent slightly less is indicative of the marginal gain concept; do everything a little bit better, then the overall result will be transformational. As there as so many variables in the dairy farming system, if each is undertaken with slightly better attention, such as better timing, improved cattle stress, better nutrition and so on, then the overall picture will be transformational

“Over the years he has spent money on sheds and machinery but he does not maintain them well. As a result he built up a large overdraft which the bank has combined with his hire purchase agreements into an interest-only long term loan. The increase in interest rates has had a considerable impact on his business and he is struggling to make payments.”

Bleak Farm, Bottom Performer

Top performing farms generate a higher output per hectare and per standard livestock unit (SLU) than the lower performers. It is noteworthy here, that the output is not measured per cow but by farm area and amount of farming activity. In other words, simply maximising yield per cow is not simply what the better farms are doing. Clearly, one of the key variables in dairy farming systems is yield per cow (often associated with all year round or seasonal calving and therefore production patterns). Both high yield and low yield systems can work, as long as the entire farm system is aligned to that particular method of production.

“The farm nutritionist has formulated a ration designed to support production of 10,000 litres of milk per year, but the cows struggle to hit 8,000. Steve is keen to be a 10,000 litre producer so keeps adding extra feed and speaking to sales representatives about yield boosting techniques, however he does no forage analysis and often stores his straights in open areas where they are picked at by vermin. Milk from forage is under 2,000 litres/cow/year.”

Bleak Farm, Bottom Performer

Top performers make significantly more use of contractors. This is measured as a proportion of total machinery, so is a measure, not of contract rearing of youngstock, but more of mechanical operations, be that forage harvesting, cultivating land, fence maintenance or hedge cutting. The headline cost of hiring another firm to bring their own machinery to do a job for you might appear expensive, but this is because the costs of that operation are all wrapped into the price asked by the contractor.

Depreciation, for example, is not a cost that takes from the cashflow but does burden a business for several years whilst the capital cost of that machine is paid off. The contractor supplies the labour too, meaning less is required on a day-to-day basis on farm. Again, this saves costs. Contractors may also have better machinery for the job, e.g. a high-capacity forage harvester or low ground pressure slurry tanker, that an individual farmer may not be able to afford or justify. Thus, contractors have been able to offer better value services.

“The farm has a small number of simple but well-maintained farm machines with all major field work contracted out. This keeps things simple and allows all team members a good work/life balance. Peter and Jane always enjoy the fact that spring calving gives them time with their family over Christmas and are now seeing their team benefit from that same structured year.”

Top of the hill Farm, Top Performer

Top performers show an increase in agricultural area over the five year period, whereas bottom performers show a small decrease. The best farms are growing and the worst are shrinking. At this point we should reflect on causation; they might be growing because they can, rather than that they are more profitable because they are growing. It takes a lot of money, investment and time as well as risk to grow a business. This is regardless of the additional effort and planning required. Poorer performers will be less able to invest in growth. Indeed, as the opposite also holds true, declining business size releases cash, often by sale of resources (e.g. heifers), which will help those struggling with cash flows.

“Five years ago an opportunity came up to buy a block of adjoining land. A loan was taken out to do so; the partners have a good relationship with their bank manager stemming from their previous experience. When this was done Peter and Jane carried out a full business appraisal with their consultant; based on the stocking rate and dry matter requirements it was decided that purchasing the new land meant that they could give up a block of expensive rented land.”

Top of the hill Farm, Top Performer

Top performers tend to have significantly higher numbers of cows per hectare (at 2.2 GLU/ha compared with 1.8 GLU/ha). More farming is taking place on every hectare of the farm making the business more intensive. This is making efficient use of one of the most expensive and limiting resources on the farm – the land. There are several ways to fit a greater number of productive cows onto a fixed area of farm. Outsource the youngstock rearing? Buy in more fodder and other feeds? These would lead to major changes in a farming system so decisions need to be carefully made. Top performing farms in this study do not contract heifer rearing out any more than poorer performers. Similarly, they spend no more (or less) on bought in feeds either. Before making big jumps in farm system, make sure the grassland and other resources are already being very efficiently utilised.

“Based on the stocking rate and dry matter requirements it was decided that purchasing the new land meant that they could give up a block of expensive rented land. Some members of the decision-making group thought they should keep the rented land and increase herd size, but Peter and Jane felt that their business worked well with 300 cows and they didn’t want to put up additional sheds and change the parlour at this stage of their career.”

Top of the hill Farm, Top Performer

The breakdown of the farm’s agricultural activities into different enterprises shows that top performers are significantly more specialised, with the percentage of farming output from dairy at just over 75%, compared with 68% for the bottom performers. This is also reflected in the lower agricultural diversity for the top performers. Bottom performers have significantly more sheep. The evidence here is clear that if you start expanding into grazing livestock, the farm performance is likely to fall. There are potentially two factors at play here. An additional enterprise that requires daily management such as other livestock is going to detract from the time and care spent on the dairy. The second factor is that any other (livestock) enterprise is almost inevitably going to offer less profit to the farm. The more things you have to concentrate on, the less time you can concentrate on each one.

“Steve likes machinery so has built up a fleet to cover all eventualities and tasks on farm. His plan is to do all field work himself, but with the beef cattle and three years’ of youngstock he sometimes runs out of time and has to pay a contractor.”

Bleak Farm, Bottom Performer

Milk price is assessed relative to the average each year, in order to avoid the distorting effect of farms not all having data for all years. Top performers average around 1.7p per litre more than bottom performers. It suggests higher performers are keeping milk clean and free from antibiotics more, and producing something more in line with what the processor is wishing to pay for. There are so many milk contracts all incentivising the farmer to supply slightly different constituents and seasonality incentives. Understand your contract and tailor your system to match the buyer’s preferences or find a contract that better rewards your production system.

“Milk is sold on a solids contract but the cows struggle to meet the standard litre and so milk price is consistently lower than the headline price. This makes Steve angry as he believes the milk buyer is being underhand with his pricing. There are liquid contracts around that would better suit his system but Steve would prefer to stay with his buyer as they have good farmer meetings with a free supper.”

Bleak Farm, Bottom Performer

Bottom performers have more agri-environment income per hectare, but the difference is not statistically significant. A moderate fixed income will be more attractive to loss making farms than those making healthy profits. Whilst the agri-environmental income is likely to remain more attractive to lower performing farms to an extent, they are also becoming more attractive to high performers as agri environmental schemes become more generous and attractive to all farm types. Some of the (higher value) options that are becoming available in agricultural policy schemes offer a generous and guaranteed income in exchange for land use change for a minimum period. Other actions are simply to reward good practice. Many (good) farmers will be undertaking these actions already so will be able to receive the support with no change to their farming systems. This is the easiest way to make money from support. More of the better farmers will see this and start using the schemes more.