Production alone cannot be used as an indicator of success, like it once was. Around 10-20 years ago production per cow, and certainly production per hectare, had close links to profit and how good a farmer you were.
Today production means very little as feed can be bought in - yet some people still focus on this, especially because it is so easy to measure via daily milk dockets or dairy company phone apps.
We also know that the farm system you operate bears little relationship to the profit you make. Low, medium and high input systems can all be very profitable (or unprofitable).
So, how does one discover the missing link between production and profit?
The person doing the books and the person making purchasing decisions out on-farm need to be the same person or, if they are partners (for example), they need to be talking frequently.
Secondly, have a good understanding of cause and effect when it comes to spending.
If $1 is spent, will it result in a return of $2? Or, if not wisely thought out, maybe only 50c? A classic example would be supplementary feed, the single biggest farm working expense for most Waikato farmers. Purchased at the right price and fed out at the right time will usually give a positive return. However, paying too much for supplement and/or feeding it out when sufficient pasture is available will almost never be profitable.
What defines ‘the right price’ or 'the right time' can be discussed with your local DairyNZ consulting officer or farm advisor.
As dairy farmers, you have a finite number of working hours in the day and yet run a very demanding and complex business.
You can’t expect to do everything on and off-farm that relates to running the business. This is one of the reasons financial management can fall down the priority list. If this is the case, it might be a good idea to put this on the New Years’ resolutions list.
Managing farm finances is often an unloved task but spending time on this and controlling farm working expenses per kilogram of milksolids is key to running a successful business.
Phil Irvine is the DairyNZ regional leader for North Waikato