Is small-scale dairy a viable alternative for beef farmers?
The mood amongst beef farmers is currently at a low ebb and many are looking at possible alternatives. Could dairying on a small scale be an alternative?
Three years ago I wrote an article titled: "Is a 50-cow dairy start-up a better bet than a loss-making drystock farm?". I still receive phonecalls from farmers the length and breadth of the country who have small parcels of land and who are currently in drystock and are asking themselves if dairy could be a viable option for them. Such was the interest in the article that I am of the belief that there is a cohort of farmers in this situation.
Please log in or register with Farming Independent for free access to this article.
To recap on the article I wrote, the basis of which founded on the five-year business plan I drew up for a farmer in his late 30s. The land quality was good, free-draining soil and while old permanent pasture dominated, all fields contained reasonable levels of ryegrass and little weeds.
There were little or no farm roadways present. There was a beef slatted shed alongside an old cubicle house which could have been upgraded easily to accommodate 30 cows. A new milking parlour and dairy were required.
The farmer's main motivation for converting to dairying was that his current system of farming was not delivering a profit. His system of farming at the time involved purchasing weanlings and carrying them through to fattening. He also works off farm.
We completed a business plan at the kitchen table and after much discussion we decided that a gradual increase in stock numbers was probably the most prudent way to approach the conversion.
This way the debt levels could be kept relatively low. It was decided that he should purchase 30 cows to start with and we budgeted €45,000 to do this.
The construction of the parlour, dairy, purchase of a secondhand 10-unit machine and secondhand bulk tank were all costed and at the time he was confident that he could complete all works for a further €45,000.
This left the farmer with an initial start-up cost of €90,000, all of which had to be borrowed.
If this amount was borrowed over seven years at 4.5pc interest then this would lead to an annual repayment of €15,000 approximately. The sale of existing stock was to be used to construct a new 20-cow cubicle house in 2017.
In the business plan we made a number of assumptions: milk price of 30c/l; we used the profit monitor average costs; we put output per cow starting at 5,000 litres (400kg milk solids) and rising to 6,000 litres (500kg milk solids); cow numbers are 30 in 2017, 40 in 2018 and 50 every year thereafter.
The farmer only has 15ac outside of the milking block that used mostly to cut silage from. Therefore, he had decided to buy in replacements from one source annually.
A whitehead or Angus bull was to run with the herd, with all calves sold. The targeted output per cow was high, but the budget allocated to purchase cows was generous and the farmer in question was confident of hitting the targets. Capital allowances and bank interest were likely to look after the tax bill until 2020.
So is it feasible to run a 50-cow dairy herd in Ireland?
The farmer was not going to draw any income from the farm for the first three years. For the following four years he would earn an income of €6,000-€8,000 annually.
When the loan was fully paid off after seven years, there would have been a further €15,000 available for drawings. Coupled with this, he intended spending €10,000 annually for three on reseeding and roadways which should be sufficient to reseed the entire farm and provide adequate roadways. When this work was complete this €10,000 would also have been available for drawings.
However, the tax bill would also have been higher at this stage. We took a worse case scenario regarding culling and purchasing replacements and hoped that in reality this bill would be much lower in practice.
By 2024, there was potential for the farmer to be making a pre-tax income of €35,000. But by then he would have spent seven years working for a relatively modest income.
Is this enough reward for a person who will be milking cows early in the morning before heading off to the day job and repeating the exercise late in the evening when he returns home?
Three years later, I can now confirm that the farmer in question decided the hours required did not justify the returns available.
He has a young family and precious family time was likely to suffer if he pursued a career in dairying. However, for a fulltime beef farmer, then perhaps there may be some logic in following such a plan.
If the level of interest the last article garnered is anything to go by, it definitely got a lot of people thinking. Many beef farmers are desperately seeking alternatives at the moment - perhaps small-scale dairying may be the answer for some?
Joe Kelleher is a Teagasc advisor based in Newcastle West, Co Limerick
For Stories Like This and More
Download the Free Farming Independent App