There are four key numbers that will help you review whether your business and farm system are future ready.
- Operating profit per hectare
- Debt to asset ratio
- Tonnes of methane emissions per hectare
- Purchased N surplus per hectare
DairyNZ can help you understand your number and where you sit in comparison to others in your region.
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The first two are the key components of business resilience.
Key components of business resilience
1. Operating profit per hectare
This indicates the ‘engine room’ of the production system. How financially profitable is your current system? The more profitable the system, the more opportunity for financial progress. If you needed to adapt your system would you want to bring your cost of production per milksolid with you? You can calculate by entering your farm data into DairyBase see Dairy Operating Profit or use the Balance sheet template on the Budgeting tools page.
2. Debt to asset ratio
This is the level of debt relative to the value of the assets in the business and is an indication of the level of exposure the business has to market ‘shocks’, like drop in milk price, increase in interest rates, or decline of asset values. If you have a high debt to asset ratio it is not necessarily bad if you generate sufficient profit at a low milk price to meet the interest and principal on the debt and your personal drawings and tax. The higher the debt to asset ratio the more at risk the business is at low milk price, poor season and an increase in interest rates or the bank requiring more principal to be repaid.
Key environmental metrics of water quality and greenhouse gases (GHG)
Methane and nitrous oxide are generated by the biological system and are hence referred to as "biological GHG emissions".
1. Tonnes of methane emissions per hectare
Methane make up 80 percent of New Zealand’s biological greenhouse gas emissions and the agriculture sector will be required to reduce total methane emissions from the sector in 2030 with all methane emissions (other livestock sectors and waste management sector) to be reduced by 10% of methane emission in 2017. This will make methane a priority area for many farmers as there will be a financial cost (pricing mechanism currently being worked through).
2. Purchased N surplus per hectare
Purchased N surplus estimation calculation:
Milk Protein / ha x 15.67% OR kgMS / ha x 7%
Note: Calculation does not take into account of N exported as effluent (e.g. effluent solids exported to a runoff) or supplements sold or exported from milking area. Calculation does not account for a high amount of stock sales or beef on the dairy platform.
Regional numbers for the 2019/20 season
Bay of Plenty
Lower North Island
Top of the South Island / West Coast
Otago / Southland