Archive: Aligned for better profits?

Published 10 September 14

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Analysis of Milkbench+ data shows that the end market for milk does not seem to influence a farm’s performance in terms of net margin. However, the sample does suggest that those farms on aligned contracts are more likely to be amongst the better performers.

When grouped by net margin, there was a relatively even distribution of farms supplying milk on liquid and non-liquid contracts. However, when these were split between those on aligned and non-aligned liquid contracts, a higher proportion of those on aligned contracts fell into the top 25% of the sample. However, is this just the influence of milk price? As the difference in the average price between the top and the bottom groups is 1.0ppl compared to the difference in net margin of 12.3ppl, it does not appear that this is the case. Rather, the analysis shows that production costs are what contribute the most to the variation in net margins. Farms on aligned liquid contracts are more likely to benefit from support to achieve technical efficiencies, which will contribute to improved net margins. Ultimately, controlling input and structural costs are still the key to better performance no matter what type of contract is in place.           

 

Top 25%*

Bottom 25%*

Difference 

Herds

 

 

 

Liquid contract

77

73

 

Aligned liquid contract

38

11

 

Non-aligned liquid contract

39

62

 

Cheese contract

16

18

 

Aligned liquid contract (ppl)

 

 

 

Average milk price

32.1

31.1

1.0

Total costs of production

27.7

40.0

-12.3

Net margin

6.1

-6.2

12.3

Non-aligned liquid contract (ppl)

 

 

 

Average milk price

31.0

28.3

2.7

Total costs of production

26.9

38.5

-11.6

Net margin

5.6

-8.0

13.6

*Averages for the top and bottom 25% enterprises ranked on net margin ppl

 Source: AHDB/DairyCo Milkbench+