High machinery costs affect competitiveness for typical UK farm

Published 22 May 19

High machinery costs were the biggest factor affecting competitiveness of the typical UK farm* against farms in other dairy exporting nations, in 2017. This is according to AHDB analysis of data from the International Farm Comparison Network (IFCN), which is presented in the latest Dairy Performance Results – our annual report looking at costs and margins for British farms and their counterparts around the globe.

UK dairy farms are exposed to the global markets through the country’s international trade in dairy products, which puts British produce in direct competition with that of farms from abroad. Understanding costs of milk production in other dairy exporting nations allows us to gauge how competitive UK farms are.

Looking at typical farm* data from 15 of the world’s largest dairy exporting countries showed larger profits were associated with lower overhead costs. Breaking overhead costs down further showed that lower machinery costs were also associated with larger profits.

FE Machinery graph 1

To see how the UK’s overheads compared with the best performing typical farms* from exporting nations, we ranked farms from these 15 countries by their profit margin to produce a top and bottom 10 farms. The typical UK farm compared fairly well across most areas, with costs generally not far off those of the top ten. However, machinery stands out sharply as the single area in which the typical UK farm is spending considerably more than its competitors, with costs more than double those of the top 10. This suggests machinery is an area in which some UK farms may have scope to tighten up costs and improve profits.

FE Machinery graph 2

Reducing machinery costs

  • Suggestions on re-assessing machinery costs are included in the Horizon report Preparing for change (page 7), as part of a strategy to reduce overheads
  • Optimal Dairy Systems KPIsto keep an eye on include:
    • Overheads (excluding rent and finance) as a proportion of dairy income
    • Return on tenant’s-type capital

If you’d like more information on farm performance internationally and for GB all-year round, autumn and spring block calving herds, take a look at the Dairy Performance Results 2017/18. More detail on the methodology behind the figures in this article is also included in the report.

 

*The IFCN data are based on “typical farms” that represent the most common system producing the highest share of milk within their nation. These figures include the youngstock rearing enterprise, as well as the dairy herd itself.

†Figures are based on full economic costs, which take into account all costs to the business including depreciation of equipment, machinery and buildings, unpaid labour and rental value of owned land. ppl is converted from US dollars per 100kg of solids-corrected milk (milk standardised in terms of fat and protein content to allow like-for-like country comparisons).