Benchmarking: How do you stack up?

Benchmarking groups can be a fantastic tool for evaluating your performance compared to your peers. Ifac’s Irish Farm Report 2022 shares a real-life example of a group of farmers who have come together to maximise their performance through benchmarking.

In conjunction with the Teagasc/Kerry monitoring group and supported by Bank of Ireland, Ifac is working with a group of Kerry Coop farmers who are actively reviewing their financials and budgeting accordingly.

The group have all completed their 2021 financials and budgeted forward into 2022, with all these budgets being reviewed again at the end of April based on the first three months’ actuals. Ifac is using their FarmPro service to work with these farmers.

Below are the findings to date for the group and their plans and thoughts for 2022. 

What can dairy farmers do to offset the impact of rising costs?

Based on financial analysis undertaken with several demonstration farms, farmers need to focus on the flowing areas:

• Fertiliser: Calculate how much fertiliser you need based on last year’s actual usage. The target for this year is a reduction of 10% along with maintaining phosphorus (P) and potassium (K) requirements;
• Slurry: Make sure you get the most from the natural fertiliser sitting in your tanks;
• Grass: Measure to identify fields where fertiliser usage can be reduced;
• Reseeding: Is it time to look at clover and multi-species swards?
• Stock: Is your stocking rate too high for your grass grown/utilised?
• Feed: Use last year’s actuals to calculate how much you will need this year.
  • Target reductions of 10% – growing an additional 1t dry matter (DM)/ha grass;
  • How many animals will you carry over the winter? Start planning now.
• Technology: Global positioning systems (GPS) supports the more accurate spreading of fertiliser and sprays;
• Financials: Review your 2021 accounts as soon as possible. Do you have a tax bill due in October? Budget for 2022, will you have any cashflow issues? Can your farm ‘carry’ the increased costs?

Budgeting and risk management have never been more critical, with cost inflation set to hit farm incomes hard this year. Stocking levels, fertiliser and feed costs will require ongoing monitoring throughout the year.

Rising input costs are the most significant concern on dairy farms this year. Fertiliser prices have almost tripled since 2020, feed costs are up 20–25%, and farmers face further energy price hikes in the coming months.

To assess the impact of cost increases, we analysed the budgets of five farmers, comparing 2022 forecasts to 2021 actual accounts. Budgets were based on no increases in milk yield.

The group would have also allowed a standard 5% inflation increase on all fixed costs; inflation is currently at 5.7% nationally.

Note: The tables show whole farm data/ha. The average milk price was €0.41 for 2021 while the budgeted price for 2022 is €0.44. Average production c/L is €0.30 in 2021 and based on same production in 2022 and budget costs circa 36c/L.

Overall, the accounts show a strong performance in 2021.

Budgets for 2022 anticipate a cost increase of €605/ha, up 17% from 2021, while profits are expected to fall by €298/ha as input costs rise and milk price increases (no increase allowed for output increases).

However, a word of caution: Four out of the five had more planned herd expansion based on stocking rates and grass growths.

The group intends to increase grass grown from 12t/ha to 13t/ha in 2022. If they were to increase their milk output sustainably through grass growth and decrease feed usage, they could drop their cost-per-litre (c/L) by up to 3c/L and therefore increase profits/ha by circa €200.

Farmers in the group will need to conduct a detailed review of their budgets at the end of quarter one as adjustments are likely required. Any change in feed/fertiliser requirements will significantly impact profitability, so budgets will require very close ongoing monitoring in the coming months.

Feed

Better grass growth and utilisation – a key performance target for the monitor group – should help offset the impact of rising feed costs. The group aim to increase grass growth by 1t/ha on average to 13t in 2022.

Consequently, its 2022 forecast anticipates just a 9% increase in feed costs/ha as they reduce feed/cow by 10% (1122kg/cow in 2021 with a reduction of 112kg/cow in 2022).

However, failure to hit the reduced feed usage target this year could see farms incur the full price increase of up to 25%; this would equate to almost a further 1.2c/L and rise the average c/L to over 7c on 2021.

Fertiliser

Farmers in the group carried over some fertiliser stocks from last year. 209kg/ha was used in 2021 with plans to reduce usage by 20kg due replacement value of clover established in 2021.

This will offer some protection against rising costs. Therefore, the budget only allows an 88% increase in cost, whereas the real increase based on the same usage will be circa 120%.

Choosing the right fertiliser products will be more important than ever this year. Using higher P and K compounds and maximising protected urea in fertiliser plans can save up to €50-€60/ac.

On a farm of 100ac farm, this would amount to a saving of €6,000/annum.

Need help?

Good planning and effective management are more important than even in turbulent times. Your accountant and Teagasc can help you identify risks and take the necessary actions to protect your business.

Now is the time to review your budget and check that you base your decisions on accurate, up-to-date information and forecasts.

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