Tight control on costs compensate for underproduction at Leicestershire strategic dairy farm

Published 30 April 18

A tight control on variable costs at Houghton Lodge Farm has delivered good profit margins despite lower than planned production in their first year.

Managed by Evolution Farming, the Leicestershire Farm brought a redundant dairy unit back to life and became AHDB’s first Strategic Dairy Farm in 2017.

One year in, their original vision for a simple spring block system hasn’t materialised due to the farm and business set up, but with the farm expecting to be fully operating by Autumn 2018 they are forecasting a milk income of 31.28 p/litre, 1.26p higher than the top 25% average.

At their March 2018 meeting, Tom Rawson, Charlie Crotty and Pete Eynon from Evolution Farming opened themselves up for a critical review by their peers and consultant Phil Clarke, P&L Consulting.  

The main contributor to their underproduction and £140k cash shortfall was the purchase of empty cows at low cost, but by cutting back, big savings were made with variable costs 23% lower than budgeted.

Tom explained  ‘Our milk yield is low for the number of cows but getting them back in calf has added value. And, as not all the cows were milking we tightened our belts to compensate for the shortfall.’  

Tom continued ‘The fertiliser bill is low as we had surplus silage and didn’t grow much grass and our farm manager is based off site managing other farms, so we have been able to make further savings on staff.’

The team employ staff from non-farming backgrounds and keep in close daily contact with the aim that in 3-4 years some of them will become managers. Consultant Phil Clarke commented ‘Creating simple systems to bring on new staff is important if you aren’t living on farm’.

When comparing the farms performance against the average their feed costs appear poor, but they spent a lot putting condition on dry cows to keep cow retention.

Phil commented “Evolution Farming appear to be technically efficient but need more of this to dilute the figures. They can do little about rent so need to be efficient in other areas to compensate for this and get the pence per litre.”

Tom responded ‘We are looking to get cost of production as low as possible.  Our target is 21-22p/l.  Arla’s average milk price is 25-26p/l so we’d be making 4-5p/l.  As Houghton Lodge Farm is our biggest operation it could make us the most money, but it could also lose the most. So there is huge potential but also huge risk’.

When looking forward to the 2018 budget, Break Even Milk Price (BEMP) is the profit requirement on a dairy farm.

Phil said ’BEMP for the top 25% is 19.18p. Currently Houghton Lodge Farm is on 27.16p.  The variable costs they can control are in a good place for a top performer however, the fixed costs are high.” 

Tom explained “By autumn 2018 we are expecting to be operating at full tilt. With it being a new farm and due to historic issues we’ve have intentionally allowed for large costs and we have also allowed for a 5p drop in milk price.”

The key message was that irrespective of farming system, good profit margins can be achieved as long as you know your costs, limit your spending according to your system requirements and maximise your output on your system of choice.

AHDB Dairy’s Optimal Dairy Systems approach encourages farmers to choose the right system for them and to use key performance data (KPI’s) to do it well. Houghton Lodge Farm demonstrates how by looking at your KPI’s and the farm set up, plans can and should change.

Tom says ‘We originally thought we’d create a simple spring block system but the reality is in 2019 we’ll probably end up with a split block and no heifers. This is quite different from the perfect spring system we set out to do but it suits the farm and business set up.’

Further information

AHDB Dairy have identified a number of key performance indicators (KPI) for each calving system that are critical to performance enabling farmers to benchmark their own performance and identify areas for improvement. Each systems KPI’s can be found here

Currently there are 4 Strategic dairy farms located in Leicestershire, Cheshire, Devon and Oxfordshire with more being recruited. Strategic dairy farms help farmers learn from each other through regular on-farm meetings where we will share key performance data and showcase what the best farmers are doing. Follow the programme at dairy.ahdb.org.uk/strategic-dairy-farm.