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Saturday 25 November 2017

Eight ways a drystock farmer can jump on the dairy gravy train

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Mike Brady

Mike Brady

Making the switch can appear daunting and full of risk, but you can hedge your bets and still cash in, writes Mike Brady

Beef and sheep farmers must be sick to the teeth of listening to commentary on the lack of profitability in the sector (mea culpa).

The latest publication in this vein is the Teagasc eProfit Monitor Analysis - Drystock Farms 2016; again this publication confirms what we already know that net margins per hectare excl premia range from -€36/ha to +€185ha for the average beef and sheep farmer.

This data is similar to that from the National Farm Survey (NFS) and to hard evidence seen in farm accounts year after year.

Drystock farmers can be irritated when told that they should get into milking cows as the net profits can be as much as 10 times higher per hectare.

As the dairy train in Ireland keeps rolling on at pace, more and more drystock farmers are asking the question: should I board this train or not?

Dairying is definitely not for all drystock farmers; the early mornings and 24/7 vocation of milking are not palatable for many.

More fear the level of bank debt required to set up a modern pollution-compliant dairy unit, and some farmers fear the level of technical knowledge required.

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So it is easy to defer and say 'that's not for me'.

But should the drystock farmer investigate further and see if he can join the dairy boom in a manner which suits his lifestyle, pocket and pride?

There are many ways for a drystock farmer to join the dairy boom (see table below).

Eight ways a drystock farmer can jump on the dairy gravy train

1 Convert

Turn an existing farm to a new dairy unit

2 Partnership

Partner with another farmer to milk cows

3 Share-milk

Enter an arrangement with a dairy farmer

4 Contract Rearing

Rear replacement heifers for a dairy farmer

5 Lease

Lease out your land to a dairy farmer

6 Sell

Sell your land to a dairy farmer

7 Invest

Put some cash into a dairy farm

8 Job 

Get a job full-time or part-time on a dairy farm

These can be divided in high- and low-risk options.

Making the decision convert a drystock farm into a dairy farm is not an easy one. The average drystock farm is around 40hectares; this would equate to milking approximately 100cows and carrying no replacements.

The capital investment required in cows, milking parlour, cubicles, slurry/silage storage and land improvement could amount to over €400,000.

A drystock farmer may have some of the infrastructure already in place, such as silage and slurry storage as well as a significant number of livestock, but the majority will require a significant spend to set up - this is a high-risk investment.

The risk can be reduced by entering into an arrangement with another farmer to reduce the capital investment required. A partnership with a neighbouring dairy farmer is ideal as the drystock farmer can invest in cows, land improvement, maybe some cubicles and avoid the big-ticket investment in a milking parlour.

Share-milking is another variation whereby a young keen dairy farmer with dairy cows teams up on a profit-sharing ratio with a drystock farmer who has converted his farm for dairying.

Contract rearing of dairy heifers is an obvious route for a drystock farmer to dip his toe into dairying: the capital investment needed is minimal. It is important to have an agreement and a dairy farmer of good standing, but this is a low-risk option.

The most basic low-risk way to enter the dairy industry is to lease your farm to a dairy farmer. By leasing for a 20-year term you can get up to €40,000 tax-free rental income per annum as a sole owner.

Opportunities

In addition to the tax-free income all their time is freed to take up new employment. This employment could be off-farm but it could also be on a dairy farm.

The perfect way for an undecided drystock farmer to sample dairying is to work part-time on a dairy farm while continuing to run his own farm. This is a foolproof way to test the water in dairying, learn on the job and earn some additional income all at once. It's a win, win, win scenario for the drystock farmer, the dairy farmer and the industry.

There are more exotic ways of getting involved in dairying, by investing cash or selling all or part of a farm to invest in a dairy farm - this is not for all but it is being considered by some.

In summary, there is a suitable option to enter the dairy industry for every drystock farmer, it just depends on their appetite for risk and reward. The advice is to make an informed decision and not revert to type.

Mike Brady is a Cork-based agricultural consultant and land agent. email: mike@bradygroup.ie


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