7 Owner Operator: Regional and Systems Financial Analysis
7.1 Regional Profitability
DairyBase® classifies farms into eight regions, five in the North Island and three in the South Island (refer to Section 2.6). The averages reported in Table 7.1 and 7.2 are median values to reduce numerical bias created by the average of sums methodology in regional samples. Thus, totals and sub-totals in these tables will not add up but will better represent average values of the data sample. See section 2.11 for an explanation of this methodology.
Table 7.1 shows key 2019-20 average performance indicators per kilo milksolids in the eight region. North Island, South Island, and New Zealand data was weighted by owner-operator herd numbers in each region. Northland had the lowest average herd size of 230 cows, 69 cows below the North Island average (299). Bay of Plenty had the largest herd size in the North Island (377), followed by Lower North Island (325). Average herd sizes in the South Island were considerably larger than in the North Island, with on average 590 peak cows milked. In the South Island, Marlborough-Canterbury had the largest herd size with 780 cows, 190 cows above the South Island average (590), while the average herd size in Otago-Southland was 600 cows.
There is a range of stocking rates nationwide with Northland (2.4 cows/ha) and Lower North Island (2.5 cows/ha) having the lowest stocking rates. Marlborough-Canterbury had the highest stocking rate at 3.6 cows per hectare, while the rest of the regions had an average stocking rate of between 2.6 and 3.0. Northland recorded the lowest average milksolids production per cow of all the regions (316 kg MS). The other four North Island regions recorded milksolids per cow between 370 and 398 kg MS. Marlborough-Canterbury and Otago-Southland recorded similar production per cow of 465 and 433 kilograms milksolids per cow respectively. However on a per hectare basis Marlborough-Canterbury production is considerably higher due to its higher stocking rate.
Farms in most regions recorded average milk payouts at or above $7.00 per kilogram milksolids. Regional average farm working expenses (FWE) per kilogram milksolids were lowest in Taranaki ($3.83) and Lower North Island ($4.12) and the highest FWE per kilogram milksolids was reported in Northland ($4.72) while all other regions’ average farm working expenses ranged between $4.33 and $4.51 per kilogram milksolids. The bottom of Table 7.1 shows the regional gross farm revenue, operating expenses, and operating profit levels on a per hectare basis in 2019-20. Marlborough-Canterbury ($4,112), Otago-Southland ($3,242) and the Taranaki region ($2,695) recorded the highest operating profits per hectare, while Northland recorded the smallest operating profit at $1,308 per hectare. Northland ($4,824) recorded the lowest dairy operating expenses per hectare, while Marlborough-Canterbury had the highest at $8,381, followed by the Otago-Southland at $6,569. Due to the much higher gross farm revenue for Marlborough-Canterbury farms, they were the most profitable ($4,112) region on a per hectare basis. Generally, Marlborough-Canterbury and Otago-Southland farms experienced higher levels of profitability in 2019-20 relative to other regions.
| Northland | Waikato | Bay of Plenty | Taranaki | Lower North Island | West Coast-Tasman | Marlborough-Canterbury | Otago-Southland | |
|---|---|---|---|---|---|---|---|---|
| PHYSICAL CHARACTERISTICS: | ||||||||
| Number of herds | 39 | 69 | 28 | 57 | 33 | 24 | 37 | 39 |
| Effective hectares | 110.0 | 109.0 | 129.0 | 97.0 | 138.0 | 147.5 | 210.0 | 205.0 |
| Peak cows milked | 230 | 310 | 377 | 252 | 325 | 390 | 780 | 600 |
| Stocking rate (cows/ha) | 2.4 | 3.0 | 2.9 | 2.7 | 2.5 | 2.6 | 3.6 | 2.9 |
| Kg milksolids sold | 75,423 | 121,734 | 127,677 | 107,211 | 118,711 | 138,562 | 362,262 | 263,482 |
| Milksolids sold per hectare | 796 | 1,092 | 1,085 | 1,134 | 933 | 1,023 | 1,640 | 1,225 |
| Milksolids sold per cow | 316 | 377 | 370 | 398 | 381 | 390 | 465 | 433 |
| PAYOUT RECEIVED: $/kg MS sold | 7.08 | 7.05 | 7.00 | 7.03 | 7.02 | 7.00 | 7.01 | 7.07 |
| DAIRY CASH INCOME $: MS BASIS | ||||||||
| Milk sales (net of dairy levies) | 7.08 | 7.05 | 7.00 | 7.03 | 7.02 | 7.00 | 7.01 | 7.07 |
| Net livestock sales (sales - purchases) | 0.82 | 0.48 | 0.57 | 0.43 | 0.52 | 0.42 | 0.43 | 0.40 |
| Other dairy cash income | 0.03 | 0.03 | 0.01 | 0.00 | 0.01 | 0.02 | 0.00 | 0.00 |
| Net dairy cash income | 7.92 | 7.61 | 7.63 | 7.49 | 7.66 | 7.49 | 7.45 | 7.48 |
| CASH FARM WORKING EXPENSES: MS BASIS | ||||||||
| Wages | 0.38 | 0.62 | 0.67 | 0.33 | 0.72 | 0.60 | 0.77 | 0.77 |
| Animal health | 0.25 | 0.25 | 0.26 | 0.22 | 0.23 | 0.21 | 0.23 | 0.22 |
| Breeding & herd improvement | 0.17 | 0.18 | 0.15 | 0.16 | 0.14 | 0.15 | 0.16 | 0.17 |
| Farm dairy | 0.06 | 0.06 | 0.05 | 0.06 | 0.07 | 0.06 | 0.04 | 0.05 |
| Electricity | 0.15 | 0.12 | 0.11 | 0.10 | 0.14 | 0.10 | 0.09 | 0.09 |
| Net feed made, purchased, cropped | 1.28 | 1.36 | 1.08 | 1.02 | 0.99 | 0.77 | 0.74 | 0.92 |
| Stock grazing | 0.09 | 0.32 | 0.27 | 0.32 | 0.14 | 0.31 | 0.94 | 0.57 |
| Support block lease | 0.00 | 0.00 | 0.00 | 0.00 | 0.10 | 0.00 | 0.00 | 0.00 |
| Fertiliser (incl Nitrogen) | 0.55 | 0.41 | 0.47 | 0.41 | 0.36 | 0.79 | 0.42 | 0.49 |
| Irrigation | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.31 | 0.00 |
| Regrassing | 0.12 | 0.06 | 0.09 | 0.03 | 0.08 | 0.06 | 0.05 | 0.04 |
| Weed & pest | 0.04 | 0.02 | 0.02 | 0.02 | 0.03 | 0.03 | 0.02 | 0.02 |
| Vehicles & fuel | 0.28 | 0.20 | 0.21 | 0.18 | 0.22 | 0.27 | 0.12 | 0.16 |
| Repairs & maintenance | 0.51 | 0.34 | 0.32 | 0.34 | 0.32 | 0.29 | 0.27 | 0.38 |
| Freight & general | 0.06 | 0.07 | 0.09 | 0.08 | 0.07 | 0.13 | 0.05 | 0.05 |
| Administration | 0.12 | 0.12 | 0.13 | 0.13 | 0.14 | 0.11 | 0.10 | 0.13 |
| Insurance | 0.10 | 0.09 | 0.10 | 0.10 | 0.11 | 0.11 | 0.07 | 0.07 |
| ACC | 0.02 | 0.01 | 0.01 | 0.01 | 0.02 | 0.02 | 0.02 | 0.02 |
| Rates | 0.13 | 0.13 | 0.15 | 0.12 | 0.15 | 0.07 | 0.05 | 0.06 |
| Farm working expenses | 4.72 | 4.47 | 4.33 | 3.83 | 4.12 | 4.29 | 4.44 | 4.51 |
| Cash operating surplus | 3.29 | 3.01 | 3.33 | 3.61 | 3.54 | 3.30 | 3.13 | 2.94 |
| ADJUSTMENTS: MS BASIS | ||||||||
| Value of change in dairy livestock | −0.11 | 0.00 | −0.08 | −0.01 | −0.04 | 0.01 | 0.01 | 0.10 |
| Less labour adjustment | 0.80 | 0.50 | 0.65 | 0.64 | 0.65 | 0.49 | 0.15 | 0.28 |
| Plus feed inventory adjustment | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Less owned support block adjustment | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.05 | 0.00 | 0.00 |
| Less depreciation | 0.41 | 0.37 | 0.35 | 0.35 | 0.40 | 0.40 | 0.45 | 0.32 |
| Net adjustments | −1.45 | −0.94 | −1.23 | −1.17 | −1.13 | −1.10 | −0.68 | −0.52 |
| OPERATING CASH & NON-CASH: MS BASIS | ||||||||
| Dairy gross farm revenue | 7.89 | 7.68 | 7.61 | 7.49 | 7.63 | 7.46 | 7.48 | 7.64 |
| Dairy operating expenses | 6.14 | 5.46 | 5.57 | 5.01 | 5.36 | 5.52 | 5.16 | 5.07 |
| Dairy operating profit | 1.69 | 2.24 | 2.30 | 2.51 | 2.17 | 2.06 | 2.49 | 2.53 |
| OPERATING CASH & NON-CASH: HA BASIS | ||||||||
| Dairy gross farm revenue | 6,461 | 8,419 | 8,504 | 8,673 | 7,008 | 7,692 | 12,178 | 9,579 |
| Dairy operating expenses | 4,824 | 6,036 | 5,928 | 5,504 | 4,965 | 5,519 | 8,381 | 6,569 |
| Dairy operating profit | 1,308 | 2,334 | 2,211 | 2,695 | 1,999 | 2,163 | 4,112 | 3,242 |
| Operating profit margin | 20.81% | 28.98% | 30.03% | 33.61% | 27.95% | 27.31% | 32.44% | 34.47% |
Table 7.2 shows key 2019-20 average financial indicators in the eight region. The averages reported in this table are medians, see section 2.11 for an explanation of this methodology. Regional average operating return on dairy assets ranged from 3.8 percent to 6.8 percent. Otago-Southland (6.8%), and West Coast-Tasman (6.3%) had the highest operating returns on dairy assets in 2019-20. The national total return on assets (including change in asset values) was 1.4 percent. Waikato reported negative total return on assets (-1%).
Growth in equity is the return on owner’s funds, including capital changes after interest is paid. Lower North Island, Malborough-Canterbury and Northland experienced positive returns on equity, while all other regions experienced negative total growth in equity. The largest negative growth in equity was recorded for Waikato (-4.7%) followed by Otago-Southland (-4.4%).
Average term debt per kilogram milksolids increased nationally in 2019-20 and was higher in the North Island ($23.48) compared to the South Island ($19.98). There was some variation between regions with Taranaki ($27.16) the highest, while West Coast-Tasman was the lowest ($15.28). Debt to asset levels were lower in the North Island (50.3%) than the South Island (53.1%) with averages across all regions ranging between 41.7 percent and 59.7 percent.
| Northland | Waikato | Bay of Plenty | Taranaki | Lower North Island | West Coast-Tasman | Marlborough-Canterbury | Otago-Southland | |
|---|---|---|---|---|---|---|---|---|
| RETURNS: | ||||||||
| Operating return on dairy assets % | 3.8% | 3.9% | 5.1% | 4.6% | 4.5% | 6.3% | 6.2% | 6.8% |
| Total return on assets % | 2.0% | −1.0% | 1.8% | 0.9% | 2.9% | 3.3% | 4.1% | 2.1% |
| Total return on equity % | −0.7% | −6.2% | −0.7% | −2.1% | 1.7% | 2.8% | 4.7% | −1.7% |
| Growth in equity % | 0.3% | −4.7% | −0.4% | −2.8% | 3.3% | −0.2% | 2.5% | −4.4% |
| DEBT: | ||||||||
| Closing term liabilities per kg MS | 22.71 | 25.11 | 19.40 | 27.16 | 23.00 | 15.28 | 23.10 | 21.56 |
| Closing debt to asset % | 51.6% | 46.3% | 47.7% | 53.3% | 52.6% | 41.7% | 57.9% | 59.7% |
7.2 Production Systems
DairyBase® categorises farms into five production systems based on the quantity of feed purchased (including cow grazing) and the timing and use of imported feed (refer to Section 2.7 for production system descriptions). For the following analysis the systems have been combined to produce three categories; low (systems 1 and 2), medium (system 3) and high (systems 4 and 5). Within each production system there is variation in milksolids production and profitability. Production system type is not a good indicator of profitability as a farm can be profitable (or unprofitable) operating any system. Profit is less to do with the production system type, and more to do with the management, milksolids production and the costs within the production system.
The averages reported in Table 7.3 and 7.4 are median values to reduce numerical bias created by the average of sums methodology in regional samples. Thus, totals and sub-totals in these tables will not add up, but will better represent average values in the data sample. See section 2.11 for of explanation of this methodology.
Average herd sizes, milking area and stocking rates increase from low systems through to high. Average milksolids produced per cow and per hectare also follow this trend, reflecting higher inputs of supplementary feed. Table 7.3 shows key 2019-20 average performance indicators per kilo milksolids in the three production system categories. Milksolids per cow for the average of medium system farms (391 kg MS/cow) was 45 kg MS/cow more compared to the average of low system farms (346 kg MS/cow). High input systems recorded an average of 448 kilograms milksolids per cow, which was 57 kilograms higher than the average for medium farms. Once stocking rates are included, average milksolids per hectare for medium input farms (1,102 kg) was 155 kilograms higher than low input farms (947 kg) and 258 kilograms less than the average for high input farms (1,360 kg).
Dairy cash income per kilogram milksolids was the highest for medium input systems at $7.58 due to milk sales being greater than the other two systems on a per kilogram milksolids basis. Low input ($7.56) and high input systems ($7.53) had similar average dairy cash incomes per kilogram milksolids. Farm working expenses per kilogram milksolids was $4.19 for low input systems and $4.39 medium input systems, while high input systems had average farm working expenses of $4.49 per kilogram milksolids.
Cash operating surplus per kilogram milksolids was the highest for low input systems ($3.40), followed by medium input systems at $3.25. High input systems recorded the lowest average cash operating surplus of $3.08 per kilogram milksolids. Operating profit per kilogram of milksolids was the highest for the average of low input farms ($2.34), although the spread between each of the system averages was 6 cents in 2019-20. Operating profit per hectare was highest for high input systems ($3,145), while the profits were lower for medium input system farms ($2,321). Low input systems averaged less profit ($2,064) in 2019-20.
| 1 & 2 (Low) | 3 (Medium) | 4 & 5 (High) | |
|---|---|---|---|
| PHYSICAL CHARACTERISTICS: | |||
| Number of herds | 90 | 151 | 85 |
| Effective hectares | 117.0 | 126.5 | 150.0 |
| Peak cows milked | 300 | 360 | 465 |
| Stocking rate (cows/ha) | 2.6 | 2.8 | 3.1 |
| Kg milksolids sold | 101,206 | 131,018 | 217,861 |
| Milksolids sold per hectare | 947 | 1,102 | 1,360 |
| Milksolids sold per cow | 346 | 391 | 448 |
| PAYOUT RECEIVED: $/kg MS sold | 7.02 | 7.05 | 7.03 |
| DAIRY CASH INCOME $: MS BASIS | |||
| Milk sales (net of dairy levies) | 7.02 | 7.05 | 7.03 |
| Net livestock sales (sales - purchases) | 0.49 | 0.47 | 0.47 |
| Other dairy cash income | 0.02 | 0.01 | 0.01 |
| Net dairy cash income | 7.56 | 7.58 | 7.53 |
| CASH FARM WORKING EXPENSES: MS BASIS | |||
| Wages | 0.53 | 0.63 | 0.63 |
| Animal health | 0.22 | 0.24 | 0.24 |
| Breeding & herd improvement | 0.18 | 0.16 | 0.15 |
| Farm dairy | 0.06 | 0.06 | 0.05 |
| Electricity | 0.12 | 0.11 | 0.10 |
| Net feed made, purchased, cropped | 0.74 | 1.11 | 1.17 |
| Stock grazing | 0.13 | 0.32 | 0.37 |
| Support block lease | 0.00 | 0.00 | 0.00 |
| Fertiliser (incl Nitrogen) | 0.53 | 0.43 | 0.41 |
| Irrigation | 0.00 | 0.00 | 0.00 |
| Regrassing | 0.06 | 0.06 | 0.06 |
| Weed & pest | 0.03 | 0.02 | 0.02 |
| Vehicles & fuel | 0.22 | 0.21 | 0.16 |
| Repairs & maintenance | 0.41 | 0.33 | 0.32 |
| Freight & general | 0.06 | 0.07 | 0.06 |
| Administration | 0.14 | 0.13 | 0.11 |
| Insurance | 0.10 | 0.09 | 0.08 |
| ACC | 0.01 | 0.02 | 0.02 |
| Rates | 0.14 | 0.11 | 0.08 |
| Farm working expenses | 4.19 | 4.39 | 4.49 |
| Cash operating surplus | 3.40 | 3.25 | 3.08 |
| ADJUSTMENTS: MS BASIS | |||
| Value of change in dairy livestock | −0.01 | −0.01 | −0.01 |
| Less labour adjustment | 0.72 | 0.50 | 0.33 |
| Plus feed inventory adjustment | 0.00 | 0.00 | 0.00 |
| Less owned support block adjustment | 0.00 | 0.00 | 0.00 |
| Less depreciation | 0.39 | 0.36 | 0.43 |
| Net adjustments | −1.20 | −1.01 | −0.90 |
| OPERATING CASH & NON-CASH: MS BASIS | |||
| Dairy gross farm revenue | 7.61 | 7.63 | 7.62 |
| Dairy operating expenses | 5.40 | 5.42 | 5.36 |
| Dairy operating profit | 2.34 | 2.31 | 2.28 |
| OPERATING CASH & NON-CASH: HA BASIS | |||
| Dairy gross farm revenue | 7,380 | 8,459 | 10,326 |
| Dairy operating expenses | 4,777 | 5,858 | 7,235 |
| Dairy operating profit | 2,064 | 2,321 | 3,145 |
| Operating profit margin | 30.25% | 29.98% | 28.84% |
Table 7.4 shows key 2019-20 average financial indicators in the three production system categories. The averages reported in this table are medians, see section 2.11 for an explanation of this methodology. The operating return on dairy assets was lower for average low input farms (4.5%). Medium input farm’s operating return on dairy assets averaged 4.7 percent and was 5.7 percent for average high input farms. Once capital and non-dairy operations were accounted for, total return on assets was 1.7% for low and 1.8% medium input systems. High input systems averaged slightly higher for total return on assets (2.5%). The debt to asset ratio was moderate for low (48.7%) and medium (51.6%) input systems and a little higher (57.7%) for high input systems. Closing term liabilities per kilogram milksolids were highest for low input systems ($22.88). The average term liabilities for high input systems was $23.45, while medium input systems ($21.99) had the lowest level in 2019-20.
All farm system types had negative average growth in equity percentages, the same as last season. Growth in equity for low input systems was -1.2 percent, medium input systems at -0.2 percent, while high input systems recorded the largest negative growth in equity of -1.3 percent.
| 1 & 2 (Low) | 3 (Medium) | 4 & 5 (High) | |
|---|---|---|---|
| RETURNS: | |||
| Operating return on dairy assets % | 4.5% | 4.7% | 5.7% |
| Total return on assets % | 1.7% | 1.8% | 2.5% |
| Total return on equity % | −0.5% | −0.7% | 0.7% |
| Growth in equity % | −1.2% | −0.2% | −1.3% |
| DEBT: | |||
| Closing term liabilities per kg MS | 22.88 | 21.99 | 23.45 |
| Closing debt to asset % | 48.7% | 51.6% | 57.7% |