What separates the best-performing farms in a high-cost era?

The 2024-25 season was strong for most dairy farmers, the latest DairyNZ Economic Survey shows. Average operating profit for owner-operator farms rose 70% to $4,849/ha, driven by a $10.02/kg MS payout received and milksolids production of 1,219 kg/ha, up 39 kg/ha on the previous season. Returns were the strongest in a decade, and many farmers used the extra cash to reduce debt and rebuild equity.

The gap between the top performing farms and the rest is widening

Beneath the strong average, the survey shows a wide and widening gap between higher- and lower performing farms. Farms in the top 25% for operating profit made about $4,886/ha more than those in the bottom 25% ($6,919/ha against $2,033/ha). Over the past decade, this gap has tended to widen in high payout years, as stronger milksolids prices magnify differences in farm performance.

The difference was not the payout. Every quartile received a similar milk price, close to $10/kg MS. What set the top farms apart was efficiency: highly productive farms were better at turning inputs into milksolids, while keeping a tight grip on production costs. They carried more cows per hectare, produced more milksolids per cow and per hectare, and kept operating expenses per kilogram of milksolids well below the rest.

Making the most of favourable conditions helps farm businesses stay stable and adaptable when margins inevitably come under pressure again.

A higher cost base – and the fixed costs are the sticky ones

That cost discipline matters even more as overheads keep climbing. Farm costs can be split into two groups.

Variable costs per hectare for the average owner-operated farm mostly move with market conditions. These include fuel, fertiliser, feed, freight and interest. Some eased in 2024-25: interest fell 17% and freight 11%, while fuel rose 2%. Fertiliser also rose 2% on the previous season but fell to its lowest share of farm working expenses in a decade. Feed, the largest single cost, was the exception, rising 15%.

Fixed costs (overheads) such as rates, insurance and administration behave differently. Rates rose about 16%, insurance 7% and administration 12%, each reaching a decade high. These costs persist in good years and bad, and they have stayed high even as general inflation fell below 3%.

The catch is that overheads add nothing to milksolids output and do not fall when income softens or production slips. They quietly erode margins. In a strong payout year that pressure is easier to absorb; in a low-payout season it becomes far more visible.

Top 25% vs bottom 25% owner-operators in 2024-25

Same milk price, different result: a $4,866/ha operating profit gap driven by efficiency and cost control.

Farm performance	Top 25%	Bottom 25%
Operating profit per ha +$4,866	$6,919	$2,033
Milksolids per ha +76%	1,471kg	834kg
Milksolids per cow +29%	497kg	362kg
Operating expenses per kg MS 26% lower cost	$6.09	$8.31
Payout received per kg MS The same	$9.99	$10.02

What it means for the season ahead

The 2025–26 season is shaping up to be another strong one for the dairy sector, with a milksolids payout around $10.15/kg MS and production forecast at decade-record levels, about 4.3% above the previous season. Fonterra farmers have also received a tax-free capital return from the divestment of the Mainland Group consumer brands.

The outlook for 2026-27 is cautiously positive. Fonterra’s opening forecast payout is $9.75/kg MS, with a range of $8.00 to $11.00, alongside steady production. However, the breakeven milk price is expected to rise to about $8.79/kg MS, driven by higher interest rates, rising on-farm costs and ongoing global volatility affecting the cost and availability of key inputs such as fertiliser, feed and fuel.

Favourable conditions have lifted incomes across the sector, but they have also underlined the value of efficiency and strong management. Recent good seasons give farmers a chance to build buffers, manage debt and invest in productivity improvements that support more resilient performance.

Read the full economic survey report of New Zealand dairy farmers for the 2024–25 season at dairynz.co.nz/economic-survey

This article was originally published in Inside Dairy August-October 2026.

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Dr Mubashir Qasim

Senior economist

Mubashir has been a senior economist at DairyNZ since 2021 and specialises in macroeconomic modelling, predictive analytics, machine learning, and the development of web applications.

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