Dairy Industry Farm Monitor Project
This Dairy Industry Farm Monitor Project is an initiative of the Department of Primary Industries and Dairy Australia. The project aims to provide the Victorian dairy industry with valuable farm level data relating to profitability and productivity performance of dairy farm businesses in Victoria.
Data was collected from around 70 farms across three regions of Victoria; Northern Victoria, South West Victoria and Gippsland. Participants have been selected with the objective of representing a distribution of farm sizes, herd sizes and geographical locations within each region.
The results published in this report should not be taken to represent population averages as the participant farms were not selected via random population sampling.
2010-11 Dairy Industry Farm Monitor Summary of Results
On the back of the two tough years for Victorian dairy farmers 2010/11 saw a return to form for the industry across all regions of Victoria. The milk price opened more strongly than many expected with most companies paying between $4.70 and $4.75 per kilogram of milk solids. Despite the strong Australian dollar, milk price step-ups including several late in the season helped push the average closing milk price to $5.64 per kilogram of milk solids.
Favourable seasonal conditions further provided an improved operating environment in 2010/11. The season saw good spring growth across the state and large quantities of fodder conserved. Irrigation allocations closed at 100% of high reliability water shares on all northern systems, however the high rainfall meant much of this water was carried forward for use in 2011/12. In Gippsland's Macalister Irriagtion District allocations were also high with irrigators receiving 100% of high reliability water shares plus 100% of low reliability water shares. Severe flooding impacted parts of the north in late 2010 and early 2011, while wet soils and pugging were concerns in some parts of south west Victoria and Gippsland. These events did create some issues for farmers and had an impact on milk production and fodder quality.
The improved market and seasonal conditions were more than enough to offset the six percent increase in cost of production that occurred throughout the year. With this combination of factors, farmers were provided the best opportunity for many years to record a healthy profit and many did so with 72 of the 74 farms surveyed recording positive earnings before interest and tax. Across the state the average earnings before interest and tax was $1.73 per kilogram of milk solids or $1,260 per hectare, a significant rise from 65 cents per kg MS recorded last year. Return on assets recovered similarly, rising from 2.2% last year to 6.2% highlighting the improvement in overall economic efficiency of Victorian dairy farm businesses.
Regionally in Victoria, the North stood out where, despite not recording the highest returns, earnings before interest and tax increased over seven fold from 20 cents per kilogram of milk solids or $153 per hectare in 2009/10 to $1.52 per kilogram of milk solids or $1,172 per hectare this year. In the South West the slight decrease in milk production was compensated for by the higher milk price which resulted in earnings before interest and tax increasing by 88% to $1.71 per kilogram of milk solids in 2010/11. Profitability in Gippsland was the highest at $1.96 per kilogram of milk solids, an rise of 145% or $1.16 per kilogram of milk solids recorded last year.
After a string of tough years these returns have offered farmers the chance to consolidate debt and perform essential repairs and infrastructure improvements which is reflected in the 33% rise in repairs and maintenance costs across the state.
The top 25 percent of producers showed the strength of well run dairy farms, recording profitability levels well above the average. The average earnings before interest and tax on these farms was $2.31 per kilogram of milk solids, $2,260 per hectare, and a return on assets of 9.5 % excluding capital appreciation.
Confidence in the dairy industry was strong with three quarters of farmers expecting an improvement in farm business returns for 2011/12. Farmers are aiming to take advantage of the good operating environment with the majority indicating that they intend to increase milk production in 2011/12. Many are also confident milk price will remain stable or increase. Milk price, input costs and climate are the main issues concerning farmers in the coming 12 months. Over the longer term milk price and input costs were again of major concern as well as succession planning and government policies around water and carbon.
A greenhouse gas emission audit was conducted using the Australian National Greenhouse Gas Inventory method. The average level of greenhouse gases emitted increased to 10.9 tonnes per tonne of milk solids produced compared to 10.2 tonnes per tonne of milk solids produced in 2009/10.
A historical analysis over the past five years of the project showed that all regions have recorded the highest earnings before interest and tax in real terms since the record milk price year of 2007/08. Returns on assets and returns on equity recovered similarly to the second highest level in the history of the project.
2009-10 Dairy Industry Farm Monitor Summary of Results
Slow start to the year
2009/10 started slowly with opening prices low compared to the previous two years as milk companies reflected nervously on the 2008/09 global financial crisis, during which time global dairy commodity prices fell significantly forcing a reduction in farm gate milk prices.
Milk price rise
As the year progressed however confidence in the industry slowly returned and milk companies announced several step-ups which saw the milk price finish in the range of $4.20/kg MS to $4.50/kg MS for most farms in this study.
In addition to the increase in milk prices, more competitive grain and input prices as well as favourable seasonal conditions and irrigation allocations across Victoria enabled farmers to increase production relative to inputs and decrease their overall cost of production.
Continuing difficulties
Despite the improved milk prices and climatic conditions and perceived recovery of general market conditions in the latter part of the year, this did not translate to an immediate return to profitability for dairy farmers. Instead the flow on effect of the 2008/09 season, which included the milk price step down and high input prices as well as the lingering drought, meant that many farms continued to struggle financially in 2009/10.
Profitability
Average profitability across the participant farms was $0.65 per kilogram of milk solids sold or $507 per hectare. This is a reduction of 37% and 36% respectively on levels recorded in the 2008/09 Dairy Industry Farm Monitor Project Report and a fall of 71% and 65% from the record highs recorded in 2007/08. Similarly the return on assets across the state fell from 3.8% to 2.2% year on year.
Regional differences
Regionally in Victoria, the majority of farms in the South West and Gippsland remained profitable with over 80% of participant farms in these regions recording positive earnings before interest and tax, while in the North this figure was closer to 66%. The impact of the volatility experienced over the past two seasons is highlighted by the fact that of the 71 farms participating in the survey, over 50% recorded a negative return to equity during 2009/10.
This means that in net terms they are worth less now than a year ago. This indicates that the interest and lease costs associated with accessing additional capital have exceeded the returns generated by this capital. Hardest hit in this area was the North where over 70% of participant farms made a negative return on equity.
Outlook is positive
Highlighted in this year’s business confidence survey was the positive outlook for the dairy industry with farmers almost universally expecting an improvement in farm business returns for 2010/11.
This, coupled with the expected increase in both milk price and production, as well as the stability of feed prices has seen farmers the most optimistic facing the coming year since the inception of the Dairy Industry Farm Monitor Project.
Challenges ahead
Similar to last year, milk price and climate and water availability are the greatest challenges participant farms see themselves facing over the next 12 months. Over the longer term, succession planning is the biggest issue facing farmers while climate and water availability remains a major concern to be addressed.
Greenhouse gas emission audit
A greenhouse gas emission audit was conducted using the Australian National Greenhouse Gas Inventory method.
The average level of greenhouse gases emitted remained relatively stable at 10.2 tonnes per tonne of milk solids produced compared to previous year’s emission of 10.4 in 2008/09, 10.8 in 2007/08 and 10.3 in 2006/07.
2008-09 Dairy Industry Farm Monitor Summary of Results
Volatile global markets
The 2008/09 year saw unprecedented volatility in the global dairy market which was strongly linked to the global economic financial crisis. The global price of dairy commodities fell significantly, with a drop of over 50% between the start of 2008
and March 2009. The Australian dairy industry exports approximately 50% of its production and as such, dairy producers were vulnerable to these falls. On farm the drop in global dairy prices translated to a one in thirty five year mid-season reduction in farm-gate milk prices. This reduction was most strongly felt in the southern dairying regions of Australia where production is mainly focused on supplying export markets. Producers supplying the domestic market were somewhat insulated from these reductions in price as supply contracts remained in place.
A mixed year
The results from the 2008/09 year reflected the mixed year for the dairy industry. With the initial strong world price for milk and high opening prices many farmers expected farm profitability levels to again be high. However with export focussed milk companies forced to revise their milk payments down, effective from February 2009, predicted profit levels were severely impacted. Average profitability across the participant farms was $1.08 per kilogram of milk solids sold or $796 per hectare. This is a reduction of 55% and 46% respectively on levels recorded in the 2007/08 Dairy Industry Farm Monitor Project Report. Similarly the return on assets across the state fell from 10% to 3.8% for the same period.
Profitability
Regionally in Victoria, the majority of farms in the South West and Gippsland remained profitable with over 90% of participant farms in these regions recording positive earnings before interest and tax. In the North this figure was closer to 75% but of greater interest is the fact that over 50% of the farms recorded a negative return to equity, compared to only 20% in the other regions, meaning in net terms they are worth less now than a year ago.
Challenges ahead
Milk price has re-emerged as the greatest challenge facing dairy farmers. This was highlighted in the business confidence survey with milk price, international markets and the value of the Australian dollar being the nominated by farmers as the biggest issue facing them for the next 12 months. In terms of impact on farm gate prices, a 1 cent appreciation of the $AUD against the $USD results in a reduction in farm gate prices of 0.5-0.6 cents per litre. With these factors in mind the majority of participants expect farm business returns to deteriorate over the next 12 months. Within this there is an expectation that the cost of purchased feed and fertiliser inputs will remain stable or decrease while the cost of fuel and oil and irrigation will remain stable or rise.
Greenhouse gas emission audit
A greenhouse gas emission audit was conducted using the Australian National Greenhouse Gas Inventory method. The average level of greenhouse gases emitted has 10.4 tonnes per tonne of milk solids produced which is similar to the 10.8 and 10.3 tonnes per tonne of milk solids produced in 2007/08 and 2006/07 respectively.
2007-08 Dairy Industry Farm Monitor Summary of Results
Strong global market
The results from the 2007/08 year reflected the strong world price for milk. The average profitability across the participant farms was $2.39 per kilogram of milk solids sold or $1,460 per hectare. This equated to an average return on assets across the state of 10%.
Optimism for year ahead
The majority of participants expect there to be either no change or an improvement in farm business returns over the next 12 months. There is a high expectation that the cost of most inputs will rise, particularly fuel and oil. A greenhouse gas emission audit was conducted using the Australian National Greenhouse Gas Inventory method.
Greenhouse gas emission audit
The average level of greenhouse gases emitted was 10.8 tonnes per tonne of milk solids produced which is similar to the 10.3 tonnes per tonne of milk solids produced in 2006/07.
2006-07 Dairy Industry Farm Monitor Summary of Results
Sever impact of drought
The results from the 2006/07 year reflected the exceptional seasonal conditions across the state. The drought had a severe impact on all participant farms with all farms located in areas declared exceptional circumstances. Lack of rainfall during the year was compounded for many who also had reduced allocations of irrigation water.
Profitability
The results show that the average profitability across the participant farms was $0.06 per kilogram of milk solids sold or $36 per hectare. This equated to an average return on assets across the state of 0.1%.
Milk prices to increase
The majority of participants expect there to be an improvement in farm business returns over the next 12 months. There is a high expectation that milk prices will increase, but also that the cost of most inputs will rise.
Greenhouse gas emission audit
A greenhouse gas emission audit was conducted using the Australian National Greenhouse Gas Inventory method. The average level of greenhouse gases emitted was 10.3 tonnes per tonne of milk solids produced.
Case study
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