# 11 Dairy Tomorrow Measures

## 11.1 Annual update on the Dairy Tomorrow economic measures

The Dairy Tomorrow Strategy outlines the aspirations that the New Zealand dairy sector wants to achieve to be competitive, productive, trusted, and valued. A core part of the Strategy is the development of an integrated set of measures for dairy farms. This report focuses on the four measures that together have been selected to help capture the international competitiveness and resilience of the New Zealand dairy sector from an economic perspective. These measures are:

• The cost of production, measured in terms of dollars per kilogram of milksolids, is a popular metric in global studies of competitiveness. In the New Zealand context, it is measured as operating expenses ($) per kilogram of milksolids. It shows on average how much profit the sector earns per unit of output at a given milk price. It is a key measure of resilience since a low cost of production helps to buffer the impacts of a change in the milk price on a farm business. • The dairy operating profit margin (%) is the ratio of operating profit and gross farm revenue, where both the profit and revenue terms are measured in units of dollars per hectare. The dairy operating profit margin is most often a number between zero and one. A higher value denotes that a farm produces a given level of revenue at a lower cost, indicating that it is able to better survive through turbulent market and production conditions. • The operating return on dairy assets, measured in % terms, is a key financial metric used worldwide to measure how effectively a business is employing their asset base. It is computed as the ratio of operating profit and the total value of dairy assets, both measured in dollars per hectare. This metric captures the ability of a farm to grow through careful, considered investment in high-performing assets. • The equity to milksolids metric, measured in dollars per kilogram of milksolid terms, reflects resilience through its focus on the value of the farm business asset that is owned and not borrowed. Controlling for the level of milk production makes it easier to compare across farms, both nationally and globally. Table 11.1: 2018-19 Cost of Production 2014-15 2015-16 2016-17 2017-18 2018-19 Cost of production (operating expenses/kg MS) 25th percentile 4.30 3.90 4.13 4.55 4.61 Mean 4.85 4.36 4.72 5.12 5.18 50th percentile 4.76 4.21 4.57 5.02 5.15 75th percentile 5.35 4.66 5.32 5.62 5.69 Table 11.2: 2018-19 Operating Profit Margin 2014-15 2015-16 2016-17 2017-18 2018-19 Operating profit margin (%) 25th percentile 17.0% -6.3% 19.3% 23.1% 20.1% Mean 23.7% 2.2% 27.5% 29.7% 26.5% 50th percentile 24.6% 4.7% 30.5% 30.9% 26.5% 75th percentile 33.2% 12.1% 36.1% 36.1% 33.8% Table 11.3: 2018-19 Operating return on assets (%) 2014-15 2015-16 2016-17 2017-18 2018-19 Operating return on assets (%) 25th percentile 2.2% -0.7% 2.7% 3.2% 2.7% Mean 3.7% -0.1% 4.4% 5.3% 4.0% 50th percentile 3.4% 0.1% 4.3% 4.5% 3.9% 75th percentile 4.8% 1.0% 5.4% 6.3% 5.2% Table 11.4: 2018-19 Equity ($) per kg milksolids

2014-15 2015-16 2016-17 2017-18 2018-19
Equity (\$) per kg milksolids
25th percentile 18.93 13.08 18.32 14.92 13.42
Mean 28.38 25.06 30.78 27.19 25.22
50th percentile 27.63 22.08 26.28 25.09 20.61
75th percentile 37.29 34.14 41.17 33.99 34.17