The past year has seen profits rise for dairy farmers after falling in 2018/19.

This is largely due to a reduction in purchased feed costs says rural accountant Old Mill in its Milk Cost of Production Report.

The report - conducted by Old Mill and the Farm Consultancy Group - found that dairy farm profits averaged £233/cow in the year to March 31, 2020 - up from £141 the previous year.

However, there remained a big gap between the top and bottom producers.

The top 10 per cent averaging a profit of 12p/litre compared with a loss of 5.48p/litre for the bottom 10 per cent - and 24 per cent of the sample are not breaking even.

“This is a big reason why 2.5 per cent of producers are ceasing production annually,” explained Gerard Finnan, farm business consultant at the Farm Consultancy Group.

“At the current rate, a lot of the bottom 10 per cent could be gone in four-to-five years’ time, unless they change their management decisions.”

This is the third year in a row that income has remained stable, with both yields and prices seeing little change on the previous season. Though the average milk price remained around 31p/litre, the subsequent challenges presented by Covid-19 meant a number of milk buyers instructed suppliers to cut production or dispose of milk.

“This resulted in some producers capitulating, and though the distressed milk market is now behind us, the report highlights how finely balanced supply and demand is,” said Dan Heal, rural accountant at Old Mill.

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The top 10 per cent of producers have once again outperformed the bottom 10 per cent by over £1,000/cow, despite income levels only being £142/cow higher.

Reducing costs has been a major driver for numerous producers over the past year, with producers cutting costs by an average of £124/cow, explained Mr Finnan.

However, the effectiveness and impact of cutting costs is starkly apparent between the top and bottom 10 per cent of producers.

“Cost efficiency is about much more than requesting suppliers to reduce their prices,” said Mr Heal. “It is looking into the expenditure of the business and adapting to suit the farm or milk contract. Or making timely investments if they will give a return.”

After the drought during the 2018/19 season, the favourable growing conditions of 2019 resulted in a £97/cow drop in purchased feed costs, says Mr Heal. Producers also spent less on seeds, fertilisers and sprays, with the weather allowing for the production of large quantities of quality forage. “However, the unpredictability of the weather does mean it is an aspect that is much harder to plan for.”

In contrast, machinery costs rose by 10 per cent on the year, due to increased contracting costs, with a corresponding fall in depreciation as field operations are increasingly outsourced, explained Mr Heal. The top 10 per cent spent £342/cow less on power and machinery than the bottom 10 per cent, whose costs averaged £710/cow.

It’s notable that yields, herd size and system are not driving profits. Yield per cow in the top 10 per cent by profit ranged from 4,520 litres, to 10,393 litres, while in the bottom 10 per cent it varied from 3,974 litres to 8,614 litres.

Though the top 10 per cent of producers have double the herd size of the bottom, scale should not affect variable costs, explained Mr Finnan.

Variable costs were 4.5p/litre cheaper for the top 10 per cent, and though greater buying power might account for 1p/litre, it shouldn’t account for 4.5 times that, he added.

Again, system has little impact on the profitability of a business. Of the top 10 per cent in terms of profitability, 44 per cent were spring calving, 28 per cent were autumn calving and 28 per cent all-year-round, with organic and non-organic enterprises represented across these.

“The same applies in the bottom 10 per cent,” said Mr Finnan. “Profitability is not down to what you do, it is the way you do it.”

To download your copy of the report go to