Dairy production up, but not profit

Dairy farmers have steeled themselves to expect a modest paypacket in the year ahead.

The Ministry of Agriculture and Forestry's (MAF) 2006 Farm Monitoring report into the status of the country's dairy sector shows farmers are expecting only a minimal rise in gross farm revenue for the coming season (2006/07).

The report says while farmers are budgeting on an overall three per cent rise in milk solid production and an eight per cent increase in cattle sale returns for the year, they expect it to be off set by a lower payout. This translates to a rise of just one per cent in their gross farm revenue.

The dairy sector farm monitoring report is part of an annual process where MAF's Policy group monitors the production and financial status of farms in terms of their cash income and expenditure. Trends, issues, and sector concerns are also monitored.

The reports are based on model farms designed to best typify average farming operations within specific regions. Information for each model is drawn from real farmers and a wide cross-section of agribusiness, and prices and projections are based on their opinion, not MAF's.

Looking at the year that's been, the dairy report says 2005/06 saw a jump in production, but the gains made did not translate into farmer profit.

It says milk solid production was up four per cent on the last season, but did not lead to an increase in profitability due to a lower payout and rising expenses.

The report's co-ordinator, MAF Policy's North Island manager Phil Journeaux, says the lift in milk solids production resulted in a 10 per cent increase in gross farm revenue, despite the lower payout. Farm working expenses, however, lifted by 14 per cent, with significant increases in wages, feed, fertiliser, repairs and maintenance. Fuel costs rose by 18 per cent and rates jumped 14.5 per cent.

"The average property has recorded a disposable loss, offset by new borrowing and off-farm income," Mr Journeaux said.

"Of the 100 farms monitored, 71 recorded a disposable loss, up from 59 the previous year."

The report concludes that most farms are once again budgeting for a disposable deficit from their operations, offset by other cash sources.

"This is a direct reflection of the difficulty of farming with a $4.00 payout with current on-farm cost structures and ever-increasing prices of inputs,' he said.