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 22/23 season ended more than a year ago, most accountants haven’t completed the 23/24 financial statements so there is no useful information for the 23/24 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 204 in the benchmark
Gross farm revenue was $4.63/kg MS compared to $5.15/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 $3.18/kg MS up from $3.01/kg MS for 21/22 and $2.54/kg MS for 20/21. This goes to show inflation has been huge and eroding farm profitability. Of this;
18% was wages
15% was stock expenses (animal health, breeding)
34% was feed (grazing, feed made and bought in, crops)
6% was fuel and vehicles
7% was fertilizer and nitrogen
Operating expenses were $3.85/kg MS compared to $3.69/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 massive hit at $0.78/kg MS compared to $1.45/kg MS for 21/22 and $1.02/kg MS for 20/21. For an average sized farm (producing 173,313 kg MS) this equates to a $116,120 decrease in profit
The average sharemilker in NZ managed to increase their equity by 3.1%
Average equity was 62.5% - just above bank requirements of 60%
Despite a challenging couple of seasons, the average sharemilker has increased their equity significantly from 56% in the 20/21 season
The following graph depicts the variability over the last 3 seasons
Contract milkers
NZ wide there were 113 in the benchmark
Gross farm revenue was $1.53/kg MS compared to $1.42/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 $0.89/kg MS compared to $0.81/kg MS the previous year. Of this;
56% was wages
12% was shed and power
10% was vehicles/fuel
6-7% was admin
Operating expenses were $1.38/kg MS compared to $1.29/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 $0.16/kg MS which equates to the risk premium that contract milkers should receive. This equated to $27,730 for the average size farm (producing 173,313 kg MS) which is below the recommended $30,000 minimum
By excluding the labour adjustment, operating profit was $0.58/kg MS if exclude labour adjustment
The average contract milker made a $100,522 profit (by excluding 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 3 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.
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