By Paul Bird
Rising costs are a concern for households and businesses across New Zealand – and dairy farmers are also feeling the impact of high inflation.
Many farms have had cost increases in their budgets of around $1/kg milksolids (equivalent to a 19% lift from 2020/21 average operating expenses).
Higher fertiliser, feed, wages and fuel costs are some of the key drivers of these increasing costs.
Managing your budget in times of high inflation isn’t easy. Any savings you can make in the season will continue into future seasons, so it’s worthwhile being proactive now, before a fall in milk prices requires action.
We’ve seen farmers prioritise paying off debt in recent years. This has left farmers better positioned to cope with tougher years. Continuing to focus on reducing debt is an excellent strategy to reduce future interest costs, so you can meet higher costs – or cope with a lower milk payout.
Benchmarking your business against similar farms can help identify opportunities to save or increase your income. Focus on making incremental gains to boost your income such as improving cow reproductive performance or ensuring you receive all the premiums your dairy company is offering.
Consider if you can increase milk production from pasture – the cheapest feed source. You can compare your current pasture use with similar farms using DairyNZ’s pasture potential tool at dairynz.co.nz/pasture-potential
There may also be opportunities to use pasture, supplements or fertiliser more efficiently. Drawing on advice from farmers, DairyNZ has information on options to reduce fertiliser use without reducing production, visit dairynz.co.nz/nitrogen-use
You might find zero-based budgeting useful. It involves starting with a blank budget and reviewing each cost. Most farmers can find some savings using this approach.
If you’re finding it difficult to identify options to manage costs, it can be helpful to involve your farm advisor, or get in touch with your DairyNZ local team on 0800 4324 7969.
Contract milking in a high inflation environment
With costs rising quickly, we encourage contract milkers to run their figures for this season through DairyNZ’s contract milker premium calculator, to check you’ll achieve a reasonable return. If contract rates are set too low, both parties should discuss the situation as a first step. Involving professional advisors can also be useful. You might identify opportunities to review contract conditions or to agree on how cost increases can be managed.
With costs changing rapidly, it’s important to set future contracts based on up-to-date figures, and ensure the contract can accommodate cost increases without penalising contract milkers.
To use the contract milker premium calculator, see dairynz.co.nz/homework.
- Paul Bird is DairyNZ solutions and development lead adviser.
