Dairy Industry Profitability for the 23/24 Season

Comparing your figures against an industry benchmark is helpful for identifying whether you are doing better or worse than you think and is good for identifying areas to improve on. DairyBase is the industry benchmark most commonly used and we have analysed the results at a high level to see how the industry performed compared to previous years. Although the 23/24 season ended more than a year ago, most accountants haven’t completed the 24/25 financial statements so there is no useful information for the 24/25 benchmark just yet.

Key terms:

• Gross farm revenue – includes milk income, stock sales and purchases, change in the value of dairy livestock between years, and other dairy related income

• Farm working expenses – includes most expenditure as shown on your profit and loss report in the financial statements except depreciation, interest, rent/lease and shareholder salaries

• Operating expenses – includes farm working expenses plus non-cash adjustments as depreciation, change in feed inventory, support block and labour adjustment (owner working in the business but not paid PAYE wage)

• Operating profit is calculated as gross farm revenue minus operating expenses

Sharemilkers

• NZ wide there were 178 in the benchmark, which is less than the previous year at 204 farms. Possibly sharemilkers aren’t as worried to analyse the figures when the milk price is good? This should be done regardless of milk price to determine where you could be making more money

• Gross farm revenue was $4.51/kg MS compared to $4.66/kg MS the previous year. This may be different to your cash income as it includes the change in value of livestock

• Farm working expenses were $3.11/kg MS down from $3.21/kg MS the previous year. This is good to see, where income was down sharemilkers were able to trim their costs accordingly. Of this;

  • 16% was wages

  • 12% was stock expenses (animal health, breeding)

  • 30% was feed (grazing, feed made and bought in, crops)

  • 5% was fuel and vehicles

  • 4% was fertilizer and nitrogen

• Operating expenses were $3.79/kg MS compared to $3.89/kg MS the previous year. This figure includes non-cash adjustments such as depreciation, change in feed inventory, support block, and labour adjustment

• Operating profit has taken a small hit at $0.72/kg MS compared to $0.77/kg MS for 22/23 and $1.45/kg MS for 21/22. For an average sized herd (producing 179,525 kg MS) this equates to a $8,980 decrease in profit

• The average sharemilker in NZ managed to increase their equity by 8.4% compared to 2.9% the previous year despite the previous year earning a higher profit

• Average equity was 62.7% - just above bank requirements of 60%

• The following graph depicts the variability over the last 4 seasons

Contract milkers

• NZ wide there were 105 in the benchmark

• Gross farm revenue was $1.66/kg MS compared to $1.53/kg MS the previous year (generally this will almost align with your contract rate with a few cents per kg MS from other income)

• Farm working expenses were $0.99/kg MS compared to $0.89/kg MS the previous year. Of this;

  • 37% was wages

  • 8% was shed and power

  • 7% was vehicles/fuel

  • 7% was admin

• Operating expenses were $1.50/kg MS compared to $1.38/kg MS (when including non-cash adjustments such as depreciation and labour adjustment – owner working in the business but not paid PAYE wage)

• Operating profit was $0.15/kg MS which equates to the risk premium that contract milkers should receive. This equated to $26,930 for the average size farm (producing 179,525 kg MS) which is below the recommended $30,000 minimum

• By excluding the labour adjustment, operating profit was $0.59/kg MS

• The average contract milker made just under $106,000 profit for the average size farm producing just under 180,000 kg MS (by excluding the labour adjustment). What would you be paid as a manager? Probably at least $90,000 - $100,000? This goes to show you should be doing budgets before accepting a contract milking position to ensure you are going to be financially better off

• We have excluded the value of manager benefits (annual leave, sick leave etc) as usually this roughly equals the value of a free house provided to the contract milker

• The following graph depicts the variability over the last 4 seasons

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.