Forget increasing milk yields and overall production – dairy farmers need to concentrate more on improving levels of efficiency if they want to boost end profits.

That was the stark warning from Neil Adams, managing director of consultants Promar International, who said end of year figures to the year March 31, 2019 highlight one of the most challenging results for dairy farms despite milk prices rising 3% on the previous 12 months, yields increasing 2.4% per cow and herd size up 1.2%.

As a result, he said average profits from the firm's 500 dairy farms on their Farm Business Accounts fell from £103,000 in 2018 to £73,000 in the year to March 2019, mostly on the back of increased feed prices.

However, there was a 240% difference in profit between the top and bottom farms with the those at the forefront showing better cost control management in all areas.

“While milk prices rose 3%, most other price movements worked against dairy profits with energy up 14-20% and feed prices up 9% coupled with increased usage due to the poor forage season,” he said. “Barren cow prices fell while calf prices were broadly unchanged.

"Income per cow was 5% higher for the year to March 2019 as milk yields rose by 2.4% on average and herd size increased 1.2%, but total feed costs increased by 11.9%, variable costs rose 8% overall which combined with a 2.8% increase in overheads resulted in profit per cow falling by 13.2%."

Worse still, he said that net worth, which is the true measure of farm sustainability fell for almost half (45%) of the farms in the sample.

Mr Adams emphasised that there was a vast range in performance with a 240% difference in profit per cow between the top and bottom farms, principally due to superior cost control in all areas of the business.

The top farms ranked on operating profit had 13% higher output per cow, an 8% lower feed rate, 17% lower variable costs and 28% lower overheads,

To remain competitive and sustainable, generating sufficient profit to increase net worth, he says farmers must focus on efficiency of production, not just scale of operations.

“For many years there has been a trend and ambition to produce more – more cows, more milk per cow with an increased reliance on purchased feeds, but our analysis starkly shows that this is not necessarily correlating with improved profitability. While some businesses have done very well by increasing scale and output, success is not guaranteed.

Comparing the top 25% of farms ranked on milk yield with the top 25% ranked on total variable costs, it was found that the profit per cow on the highest yielding farms was lagging significantly behind the high cost efficiency farms.

Futhermore, while the high output herds boasted 30% higher output per cow, their feed rate was 24% higher, and they had 21% higher variable costs and 13% higher overheads. Across the board the higher yield farms were carrying on average, higher costs resulting in a 62% lower profit per cow.

“The vital message is that it is not what you produce, but how you produce it. On average, higher efficiency will be more important for sustainable businesses than high output," said Mr Adams.

He added however, that it is insufficient to just focus on feed efficiency, although it is a key area all costs need to be reviewed and understood. For example, producers should pay as much attention to labour and power and machinery costs. On a per litre basis, both labour and feed costs account for a quarter of the difference in operating profit between the top and bottom farms, so there are efficiencies to be realised in both areas.

Looking further ahead, he said pumping more milk into the tank is not the way forward.

"High output does not necessarily translate into higher profits although there are some high output farms out there making a lot of money.

"Net worth fell on 45% of our farms against 39% the previous year, so you have to find out what works for your business. Find new ways of inspiration and make more efficient use of forages to ease the pain.

"The amount of money some farms were losing was embarrassing. You can't keep on making such losses – you have to be competitive which has nothing to do with the colour of cow you're milking or your soil type. Good management is the difference between the good the bad and the ugly," said Mr Adams adding that producers should be continually, planning, forecasting and budgeting.

“Businesses need to challenge the status quo, identify a clear strategy and focus on doing everything well, leaving no stone unturned in the quest for greater efficiency,” he concluded.