Northern Victorian Dairy Industry Comes Back to Black
The latest survey of dairy farm profitability commissioned by the Victorian Government and Dairy Australia, has revealed a stunning return to form for the state’s dairy producers after a sustained period of low milk prices and more than a decade of drought.
The 2010-11 Dairy Industry Farm Monitor Project has found that last financial year was the best for dairy farmers since 2007-08.
As part of the Dairy Industry Farm Monitor Project, the Dairy Services Branch surveyed 74 farms across the state’s three key dairy regions of northern Victoria, southwest Victoria and Gippsland.
The results reflect a widespread and dramatic improvement in the profitability of dairy operations in each of the three regions, helped by rising milk prices and better seasonal conditions.
The survey found that earnings before interest and tax (EBIT) across the three regions had surged from 65 cents per kilogram of milk solids or $507 a hectare in 2009-10, to $1.73 per kilogram of milk solids or $1,260 a hectare in 2010-11.
This is a phenomenal improvement in the financial performance of our dairy farmers who have battled long and hard against more than a decade of drought and a period of low milk prices.
Some surprises from northern Victoria
While it didn’t record the highest returns, the stand-out region in the 2010-11 survey was northern Victoria. Earnings before interest and tax increased more than seven fold from $0.20 per kilogram of milk solids or $153/ha, to $1.52 per kilogram of milk solids or $1,172/ha. EBIT is shown in figure one as the distance between the price received and the break-even price required. The graph shows that in 2010-11 all farms recorded a positive EBIT, compared to 2009-10 when the average EBIT was negative. Return on assets (excluding capital appreciation) in the north also recovered strongly from 0.8 per cent on average to 7.0 per cent, with a range of 0.6 per cent to 16.4 per cent.
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Figure 1: Breakeven milk price required per kilogram of milk solids sold. |
This was helped by farms in the north recording the highest average net milk income of $5.69/kg MS, which was higher than the other two regions. The north also recorded higher variable costs than the other two regions however, mainly resulting from increased spending on fodder purchases, hay and silage making, and unsurprisingly, irrigation. Whilst farms in the north reported the lowest average herd size, they had the highest production per cow as shown in table one, which lists some of the key physical characteristics of the farms surveyed in each region.
| Farm physical parameters | State-wide | North | South West | Gippsland |
|---|---|---|---|---|
| Number of farms in sample | 74 | 24 | 25 | 25 |
| Herd size (ma. no. milkers for at least 3 months) | 305 | 261 | 369 | 285 |
| Annual rainfall 2010-11 | 1,021 | 916 | 1,095 | 1,047 |
| Water used (irrigation + rainfall) mm/ha | 1,104 | 1,089 | 1,099 | 1,123 |
| Total useable area (hectares) | 236 | 196 | 322 | 190 |
| Stocking rate (milking cows per useable hectares) | 1.4 | 1.5 | 1.2 | 1.6 |
| Milk sold (kg MS/cow) | 493 | 495 | 491 | 494 |
| Milk sold (kg MS/ha) | 719 | 762 | 585 | 811 |
| Milk price received ($/kg MS) | $5.64 | $5.69 | $5.62 | $5.59 |
| People productivity (milking cows/FTE1) | 92 | 89 | 89 | 97 |
| People productivity (kg MS/FTE1) | 45,504 | 43,717 | 44,587 | 48,138 |
Compared to 2009-10, variable costs only increased slightly, while overhead costs rose by 13 per cent. This was mostly driven by a rise in repairs and maintenance costs, which suggests that with the improved cash flow farmers are taking the opportunity to undertake works that have been delayed over the past couple of years due to the tight financial situation.
While the 2010-11 show great results for the dairy industry in Victoria, it is important to remember that it follows a number of tough years in which many dairy farmers made a loss; as many as half of the producers surveyed across the state in 2009-10 posted negative returns.
What the better results in 2010-11 will do is enable many farmers to consolidate their businesses, reduce debt and attend to essential farm maintenance and improvement works they have had to defer because of the tough operating conditions over recent years.
The top 25 per cent of producers in northern Victoria highlighted the strength of well run dairy businesses, recording profitability levels well above the average. In the north these farms on average recorded an EBIT of $2.39 per kilogram of milk solids, $2,688/ha and a return on assets of 12.1 per cent.
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| Daniel Gilmour or Claire Swann at DPI Bendigo |
Confidence in the industry is also very strong with the majority of farms indicating they are likely to increase production during the 2011-12 season. Many are also confident that the milk price will remain stable, or increase.
Similar to the 2009-10 results, milk price, climate and water availability continue to be the biggest issues facing farmers in the next 12 months. Over the longer term, milk price and input costs are the biggest issue facing farmers, while policy decisions around both water and carbon are a major concern to be addressed.
Electronic copies of the 2010-11 Dairy Industry Farm Monitor Project annual report are available by emailing Farm.Monitor.Project@dpi.vic.gov.au
Hard copies of the report will be available from August 31.
For more information on the project please contact Daniel Gilmour or Claire Swann at DPI Bendigo, telephone (03) 5430 4444, or via the project email.
