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Monday 25 September 2017

Facts and figures: Dairy earnings are the stuff of most other farmers' dreams

Modern spring-calving dairy farming is a stressful occupation for the first five months of the season
Modern spring-calving dairy farming is a stressful occupation for the first five months of the season
Darragh McCullough

Darragh McCullough

Beef farmers would probably look at the figures in disbelief.

Despite the entire milk industry, and certainly every dairy farmer, telling anyone who would listen that 2016 was a terrible year with milk prices on the floor, the latest analysis from Teagasc shows that top dairy farmers made close to €1,000/ha last year - after paying themselves a wage!

It's the stuff of most other farmers' dreams. If dairy operators can make a wage of €35,000 a year for a 45-hour working week and still pull in that kind of money in a year when prices are at "historic lows", imagine what it's like in the good years.

Of course, I can already feel the blood pressure rising in every dairy farmer reading this.

The reality is that if it wasn't for the miserable returns that exist in the majority of other farm enterprises, there would be a severe shortage of new entrants into dairying.

Why? The facts are fairly straight-forward. Modern spring-calving dairy farming is a stressful occupation for the first five months of the season. It's physically demanding, has high stakes and woeful long hours with the average dairy farmer clocking up 70-80 hours a week. No wonder it is the most dangerous occupation in Ireland.

Farmers should bear in mind that the average industrial worker expects to earn over €22/hour - a full 50pc more than Teagasc was allowing for farmers' time in their study of 2016 profit monitor data.

And that's before you factor in the unsociable hours and the fact that it can be pretty dirty work - something that most dairy farmers are oblivious of.

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It's this latter reason that hired labour is regularly touted by dairy leaders and researchers as the big burning issue at farm level.

The Irish dairy industry isn't unique in this regard. The US farmer has to resort to South American labour because US citizens consider dairy farming 'dirty work'.

Even the promised land of New Zealand is relying more and more on Filipino staff to keep the milk flowing.

Go a step beyond the numbers in the profit monitor and compare the return on investment. Even the best guys will struggle to top a 4pc return on the money they've tied up in their farming operations.

What could those same individuals earn if they had that money tied up in apartments, warehousing or even CRH shares? A 4pc return on investment is usually only acceptable on investments that are extremely low risk and require little or no time input. Dairy farming cannot claim to tick either of those boxes.

Despite all that, it's still one of the best farming gigs out there.

Looking into the figures a little more also reveals some perspectives that we don't hear a lot about from the usual suspects.

The winter milk sample made more per hectare than the spring calving operators - almost €250/ha more in net profit terms, and close to €200/ha when farmers' labour is accounted for.

I've been guilty myself of writing off winter milk systems over the years as being 12-month jail sentences for little, if any, extra return over the spring calving alternative.

But as spring calving set-ups evolve, I see first-hand the toll the workload of compact calving and then intensive breeding takes. Maybe a winter milk system that has a manageable level of work year-around, and a better return for the hours involved deserves a second look. Especially in an era when farmers are competing for increasingly scarce skilled labour.

Even looking back across the last eight years, the winter milk operator has consistently returned an extra €100-200/ha every year bar one (2015).

For the majority though, the standard message from Teagasc still holds true - the farmers getting the most grazed grass into their cows are the ones making the most money.

The top 25pc make more money from less land because they are pumping an extra 3t of dry matter out of every hectare.

That in turn translates into higher stocking rates and milk production per hectare, which accounts for the €1,000/ha extra output.

Yes, it does cost a little extra to get more grass per hectare - but not a lot. Costs are less than €150/ha higher, and, crucially, those top farmers aren't actually working harder - if anything they put less hours in on the farm than the average operator.

Compared to the average since 2009, dairy farmers were over €440/ha worse off in 2016 - that's where the bad year comes in.

The average net profit from 2009 to 2015 was €1,729, compared to €1,288 last year for a matched group of spring producers.

Some other interesting statistics to come out of the report is that herd size and land farmed increased by 54pc and 37pc respectively over the last decade.

While a 6pc increase in milk yield is positive, it is the 28pc increase in milk solids per hectare that is the real sign of progress.

However, as any dairy farmer will testify to, this jump in productivity doesn't translate directly into the bottom line.

Net profit per hectare has effectively fallen as a 26pc increase in variable costs and 9pc increase in fixed costs eat into profits.

The only buffer against these declining terms of trade is the increase in scale - and hence the farming obsession with finding another 'nice bit of land'.

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