operating profit levels from 8 to 12 pence per litre.
CAP support and environmental payments, we have estimated that a 500 cow herd producing an operating profit of 10 pence per litre would generate a return on capital of 3.6%, if the cost of land is included. If the cost of land is excluded, then a return of up to 12% would be achievable. The key question is whether this level of return is sufficiently attractive to entice farmers or anyone else for that matter, to invest? Our experience of working in other
parts of the world, such as the US, India, China, Chile and some parts of the EU, suggests that farmers and investors are prepared to risk their capital for returns of this magnitude. Their confidence is boosted by a belief that returns for dairy products will continue to increase, as will the value of the assets they invest in, particularly land.
attractive to entice farmers, or anyone else for that matter, to invest?”
Table 1 – Potential Returns from a 500 Cow Dairy Unit Per Cow Per Herd National (+500 herds)
Cows Litres
Operating Profit 8ppl
10ppl 12ppl
Capital Expenditure Land
Cows & Stock Buildings Machinery
Total Capex
Total Capex (excluding land) Return on Capital
At 8ppl Operating Profit At 10 ppl Operating Profit At 12 ppl Operating Profit
500 8 4 million
Per cow Per herd £640 £800 £960
£14,300 £1,440 £6,100 £500
£22,340 £8,040
£7.15 £0.72 £3.05 £0.25
£11.17 £4.02
Including land Excluding land 2.9% 3.6% 4.3%
8.0%
10.0% 11.9%
It is clear that these businesses will need very high calibre
managers to succeed. As businesses get bigger, employees have to take on more responsibility. Managers are likely to spend more time supervising and motivating their teams and less time, literally getting their hands dirty. The best managers quickly learn that letting go of practical farming tasks is essential, however much they liked doing them, if they want to grow their business. It is likely the expansion of the UK dairy sector will not be driven
primarily by gradual expansion of existing businesses although this will be important and there will be some real opportunities. The main drivers will be investors and farmers with a focus on business excellence.
FEEDING FOR THE EXTRA PRODUCTION Wherever the additional production comes from, be it organic growth or new units, achieving a significant increase in production has huge implications for the animal feed industry which has seen a period of contraction in parallel with the decline in the national herd. Demand will increase for compounds, straights, blends and
supplements, as well as for forages. The balance will depend on the systems adopted and it may well be that the 500 new 500 cow units discussed here will adopt 365 day housed, TMR based systems, but others will rely to a lesser or greater extent on compounds. It can be expected that the new units will achieve a better than
average level of performance. If they achieve the current performance of the top 20% of herds on Promar Milkminder they will have an average feed rate of 0.33kg/l. This would result in a total concentrate requirement of 660,000 tonnes per annum. If compounds made up 40% of the total, this would require an additional 266,000 tonnes per annum. The additional cows would also require 12 tonnes of silage per
head, giving an extra 3 million tonnes of forage per annum. Then it will be necessary to add the requirements of calves and heifers. At
FEED COMPOUNDER JANUARY/FEBRUARY 2014 PAGE 31
a 20% replacement rate there would be an additional 50,000 heifers required per year. Clearly any significant expansion of milk output will require
an increase in feed manufacturing and supply capacity with other implications for compounding and blend facilities, raw material importing and overall logistics. All this must be achieved at time when the impact on the industry of carbon footprinting will increase. While there may be some spare capacity in the compound feed
sector, it is probable that investment will be required, especially if new units are outside the principal dairying parts of the country. There will
£320,000 £400,000 £480,000
Per cow Per herd (£ million)
250,000 2 billion
National
£160 million £200 million £240 million National
(£ billion) £3.57 £0.36 £1.53
£0.125 £5.58
£2.01
Confiden investme perceive outweig it is thei ability to forward can expa who can
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