As dairy farm costs climb ever upward, Donna and Corrie are applying their learnings from previous peaks and troughs at a time when many farmers are struggling to maintain profitability. 

Farmers involved in DairyNZ’s Budget Case Study project, which includes the Smits, have experienced an average increase in operating expenses over the past two years of an eye-watering 23%, up from $4.34/kg MS to $5.34/kg MS (budgeted for 2022/23).

That $1.00/kg MS jump in costs has been covered by the rise in gross farm revenue of $1.26, with most of this being needed to pay for higher interest rates and living expenses.

Growing more green, for more milk

Donna says she and Corrie have stuck to a “keep it simple” approach throughout their farming career. 

At its core, and playing a key to holding costs down, is the mantra to “grow more grass and turn it into milk”, capitalising on what will always be the lowest-cost feed source at hand. 

“We do use some supplement, about 100t of PKE (175kg/cow/ pa) over summer to help keep condition on cows when they stop eating as much grass over the hottest days, but that’s as far as it goes, and we’re working on a System 2 approach,” says Donna. 

That ability to maximise the cheapest feed possible has been aided by committing to the highest quality farm they could. 

The free-draining productive flats around Edgecumbe were not the cheapest when they purchased their farm, but they’ve proven the most capable of generating quality grass. “We first had a property at Otakiri, nearer Kawerau, but it was too dry, and another property below sea level that was on a flood plain,” says Donna. 

“There are lots of ways to maximise your profit – ours was to buy a quality asset to grow good grass on. You make more profit from day one, which means you can pay off debt earlier and then you’re ahead.”

Today, the property they’ve added to 14 times is “tidy but not highly automated”, reflecting their simple approach, she says. 

Growing plenty of grass has enabled them to hold their farm working expenses (note, this excludes unpaid family labour and depreciation, which are operating expenses) at around $2.90/ kg MS over the past few years, pushed up to $3.50/kg MS for the past year. 

“But this was largely our decision, opting to take advantage of the higher payout and spend some more on repairs and maintenance than we usually would,” says Donna. 

The usual suspects also appear on their list of increased costs, namely electricity, fertiliser, fuel, rates and supplement.

Winding costs back

Their ability to adjust to rising farm costs stems from their second principle: to keep costs as variable as possible, rather than be lumbered with ongoing, fixed costs. The “keep it simple” approach fits well with this.

There are no major overheads, like extra expensive depreciating machinery and infrastructure associated with high supplement inputs. Meanwhile, good soil fertility levels mean they’ve been able to tune back fertiliser inputs with confidence in the past year.

Corrie and Donna also work hard to minimise hidden costs from waste that can occur throughout the farm operation. 

This demands a quick response to problems, whether it’s a leaky trough or lame cows, whereas leaving those problems results in a far greater expense later. 

“Lame cows are a good example. It’s easy to put off dealing with them – they’re not fun to do – but you can lose so many more days out of the herd and get lower production from them, and that may not be counted, but it is real,” explains Donna. 

They also encourage staff to put items back where they found them, and always have a spare on hand. “If things don’t go back where they should, you end up being unable to find them and buying another, only to find the original later. We ensure it’s as simple as having a spare trough arm on your farm bike to make a repair when you see it.”

Future costs include emissions 

Donna and Corrie are tackling the future challenge of greenhouse gas emissions pricing in a manner that also fits with their low-cost, simple approach. 

“We’re focusing on breeding better, lighter cows that deliver more kgs of milksolids per kg of bodyweight, by moving from a Friesian herd to a crossbred herd. 

“We’re now doing four herd tests a year instead of two, identifying the lower Breeding Worth cows, mating them to Hereford genetics, with the higher ones to Premium sires, keeping their heifer calves as future replacements.” 

With no relief from cost rises appearing on the horizon, the Edgecumbe farm may be well positioned for a major shift in operations in coming years, says Donna. 

“Because we’re milking through two separate dairies on the two farms side by side, we would look at automating one of them with robotic milking, particularly given the cost of a rotary to cover both would be close to $1.5 million.” 

Their ability to move cows that are suited or not suited to such a system between the farms makes it an appealing option. Labour savings, and an interesting new way to continue dairying, are also attractive. 

Donna sees robotic milking becoming a popular option, particularly on smaller North Island dairies, as aging owners look to stay engaged with farming but in a less physical way. 

“We’re not quite there yet in terms of the capital cost, but I think it will be getting closer with the next generation of milking robots.”