Farm Ireland
Independent.ie

Tuesday 24 April 2018

How can a dairy farmer earn €90,000/year?

Martin Ryan

How a farmer getting €750/week from a dairy enterprise, can turn the holding into delivering a family income of €90,000/year, has been plotted by Teagasc in new research work at Moorepark.

It is one way to reverse a situation which are “classic examples of running faster, while at the same time going backwards”.

Senior Research Officer,  Laurence Shalloo has drafted the formula to double the return on investment without receiving an increase in the price of milk sold off the farm.

He says “Expansion based on investing in grassland productivity facilitates the generation of significant profits at farm level.  

"The returns for investment when there is a focus on increased grassland productivity will be higher than even the most critical of investment hurdle rate criteria,” he says.

In contrast he stressed that “expansion where the process just involves increased bought in feed does not facilitate a good investment”and adds “the expansion  process when based on increased grassland productivity increases significantly the overall return on investment”.

A 90-cow herd on a land base of 50 ha, with all replacements reared on  the farm, with the grass area producing 10.3t and utilising 7.9 t DM/ha producing a net profit of €39,308 which corresponded to an overall return on investment of 2.7pc. The milk price was set at 29.5c/L.

Six different scenarios were considered in the study with wide variations in the results for income generation. 

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When cow numbers were increased without any increase in grass growth, and the feed deficit being made up by bought in feed, the income dropped to €30,635, with return on overall investment falling to 2.4pc and there was no benefit from the additional investment.

When an additional 20ha of land was leased, despite having to carry an additional investment of €116,857 and extra labour costs of €14,569 the profit increased to €46,893 and the return on overall investment increased to 3.3pc.

However, when the cow numbers were increased to match the available extra feed, and replacement heifers were reared off the farm the peak performance was achieved, returning a net profit of €89,916 and a return on investment of 5.3pc after taking account of the additional investment of €413,571 and extra labour costs of €26,490 and the return on the additional investment was 14.6pc.

Laurence Shalloo points out that investing in areas of the farm that will increase pasture productivity and investing in one’s own skillset around grassland management will maximise the returns from the overall expansion process.

“Where expansion occurred without investing in pasture productivity overall profitability was reduced and the investment in expansion, even though it was lower on a per cow basis than the other scenarios was negative” he said adding “this is a classic example of running faster, while at the same time going backwards”.

The analysis pointed to an urgent requirement to invest in technologies at farm level that will increase pasture productivity to ensure that the expansion process is successful, he concludes.

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