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Dairy Business Analysis


Full Farm Business Performance Report
Financial and Physical Analysis



D & B Farmer

X Farm Ltd

Issued June 2014


For the Year Ended 31/5/2013


Disclaimer: The analysis is based on information provided which has not been verified by DBOY. Its manager holds no
responsibility for any changes made on the basis of this analysis. Implementation of any recommendations should only be
considered in consultation with your professional advisors.
Monday 19 May 2014 15:19

D & B Farmer
X Farms Ltd
2012/13 X Farm vs Waikato Benchmark
DEFINITION
1. HIGH RISK -
NEEDS
ATTENTION
2. MED-HIGH
RISK
3. MEDIUM RISK
4. LOW - MEDIUM
RISK
5. LOW RISK -
EXCELLENT
PERFORMANCE
YOUR
FARM
SCORE
YOUR
FARM
RESULTS
PRODUCTIVITY
MEASURES
Operating Profit/KgN Leached/ha
n
3 $62
KgMS/KgN Leached/ha
n
2 46
GHG g/kg MS
n
4 9
Nitrogen Conversion Efficiency %
n
3 33%
EFFICIENCY
MEASURES
Kg Soluble N Applied/ha
n
2 175
kg N Leached/ha
n
4 24
kg P Runoff/ha
n
4 1.1
Nitrogen applied as effluent
n
1 151
Percentage of milking platform
receiving effluent n
2 19%
SOIL QUALITY &
PROTECTION
Winter Cropping % of farm
n
5 0%
60 OVERALL SCORE %
ENVIRONMENTAL IMPACT ASSESSMENT : Dairy Business of the Year 2014
D & B Farmer - X Farms Ltd
EFFLUENT
MANAGEMENT
T: 07 870 4901 F: 07 870 5408 PO Box 502, Te Awamutu 3840 www.no8hr.co.nz
HUMAN RESOURCES METRICS
Poor or Lower Quartile Median Quartile Upper Quartile Excellent or
Very Risky or High Risk or Average Risk or Low Risk Very Low Risk
Stability Index - Management Staff -
three year average
1.00 0.95
Stability Index - Non Management
Staff - three year average
1.00 0.54
NON WAGE STAFF COSTS
Costs per FTE (milk co fines,
employment disputes costs etc)
$0 $289 2.5
NON SCHEDULED DAYS LOST
Days Lost per FTE (beyond annual
leave entitlements)
1.20 1.09 0.9
INVESTMENT IN FORMAL
TRAINING
Training spend per FTE in $$ and
Time
96% 44% 2.4
LABOUR UTILISATION Cows per FTE 131 155.74 0.5
DIRECT WAGE COSTS
Management & Staff Wage Costs
per Cow
$548 $425 0.2
7.9
Your Score
STAFF STABILITY 1.3
OVERALL SCORE
(out of 15)
X Farm Ltd - D & B Farmer
SECTIONS MEASURED BY
Your Farm
Results
The Group
Average

© Intelact Ltd 0800 735 588

1
EXECUTIVE SUMMARY
Overall your business is generating a comfortable return however there is a level of risk with
high cost of production plus financing costs. High per cow milk production and low core costs
are key features to your returns. To further fine tune your business look into reviewing some
high costs to reduce your cost of production as well as reviewing financing. Supplement
inputs have increased from previous years as a result of the drought and milk production has
taken a drop which will be resulting in your higher cost of production. Consider ways of
being more drought resilient either by reviewing your stocking rate to ensure pasture per cow
is maximised, or look into using summer tolerant crops to manage feed intake over the low
pasture growth periods.
The environmental impact on your farm is moderate, with reasonable N and P loss there is
room to review the impact, consider better utilising nutrients from your effluent.
Human recourses in the businesses are well managed; small adjustments may help to improve.
SUMMARY OF RESULTS
PROFITABILITY MEASURES
Your Farm
Waikato
Average
Waikato
Top 10%
Return on Capital 3.3 % 3.0 % 5.2 %
Operating Profit per Hectare $ 1,484 $ 1,526 $ 3,181
Return on Equity 0.6 % -0.8 % 2.7 %
Pasture Harvested (tDM/ha) 10.7 11.5 13.7
Milk Price ($/kgMS) $ 5.84 $ 5.85 $ 5.85
RISK MEASURES

Pasture as % of Diet Consumed 65.1 % 73.7 % 72.0 %
Operating Profit Margin 19.0 % 19.2 % 31.9 %
Cost of Production per kg Milksolids $ 4.92 $ 4.84 $ 4.01
SOLVENCY MEASURE

Equity % 62.0 % 64.3 % 65.8 %
EFFICIENCY MEASURES
Milk Production per Hectare (kgsMS/ha) 1,157 1,196 1,510
Milk Production per Cow (kgsMS/ha) 392 360 405
Average Cost of Consumed Feed $/tDM) $ 326 $ 358 $ 321
Forage Cost ($/tDM) $ 350 $ 433 $ 397
Concentrate Cost ($/tDM) $ 385 $ 435 $ 404
Cows per Full Time Staff Equivalent 131 147 176
Management & Staff Costs per Cow $ 548 $ 422 $ 361
Core per Cow Cost $ 577 $ 617 $ 559
Core per Hectare Cost/tDM Pasture Harvest $ 89 $ 101 $ 87
RESILENCE MEASURES
Operating Profit / Kg N Leached/ha $ 62 - -
KgMS/KgN Leached /ha 46 - -
N Leached Per Hectare 24 - -
P Runoff Per Hectare 1.1 - -
N Applied as Effluent 151 - -
% of Milking Platform Receiving Effluent 19 % - -
DEFINITIONS of KEY PERFORMANCE INDICATORS can be viewed at
DEFINITIONS of TERMS used in RED SKY can be viewed at
www.redskyagri.com/file/pdf/RedSkyKPIsDairy.pdf
www.redskyagri.com/file/pdf/RedSkyDefinitions.pdf

© Intelact Ltd 0800 735 588

2
KPI’S – PROFITABILITY


KPI
YOUR
FARM
WAIKATO
AVERAGE
WAIKATO TOP
10 %
Return on Capital 3.3 % 3.0 % 5.2 %
Operating Profit/ha $ 1,484 $ 1,526 $ 3,181
Return on Equity 0.6 % -0.8 % 2.7 %
Pasture Harvest (tDM/ha) 10.7 11.5 13.7

The most important measure of profitability is Return on Capital. This is calculated by
dividing your Operating Profit by the total value of all assets under your control (both owned
and leased). The lease costs associated with any leased assets are included in the Operating
Profit calculation.
Return on Capital
Your Return on Capital of 3.3% reasonable compared to the Waikato Average. The main
reason for this is your reasonable Operating Profit.
Operating Profit
Your Operating Profit per Hectare of $1,484 is similar the Waikato Average. This is a
result of high income, with slightly higher than average costs. Attention should be focused on
maintaining high income while keeping costs under control. Ensuring every dollar spent
generates a return.
However this is not as sound a measure of profitability as Return on Capital, as Operating
Profit per Hectare is highly influenced by the quality of the land being farmed.
Return on Equity
Return on Equity is the most important indicator of net wealth growth – but it cannot be used
for comparison with other farmers as it includes debt servicing, and is therefore influenced by
each individual’s level of debt.
Your Return on Equity (excluding capital gain) is 0.6% which is less than your ROC. This
means your cost of borrowing is greater than the return you are generating, but still positive
so you are still growing equity.
In general your Return on Equity can be improved by:
• Increasing operating profit; and/or
• Decreasing finance costs (i.e. borrowing at a lower rate).
Pasture Harvest
Your Pasture Harvest of 10.7 tDM/ha is slightly lower than the Waikato Average. This is
influenced by your nutrient management, land quality; pasture management, stocking rate,
nitrogen fertiliser use, effluent use and supplement use. An increase in pasture harvest has the
effect of reducing the cost of pasture and hence the overall cost of production, so you should
aim to increase your pasture harvest.
Key concepts of 2012 Dairy Business of the Year finalists were:
• Use the three leaf grazing principle to manage rotations.
• Regular monitoring of pasture cover.
• Graze to consistent residuals (5 cm pasture height, 1500kgDM/ha).

© Intelact Ltd 0800 735 588

3
KPI’S – SOLVENCY & RISK


KPI
YOUR
FARM
WAIKATO
AVERAGE
WAIKATO TOP
10 %
Equity
62.0 % 64.3 % 65.8 %
Pasture as % Feed Consumed 65.1 % 73.7 % 72.0 %
Operating Profit Margin 19.0 % 19.2 % 31.9 %
Cost of Production per kg MS $ 4.92 $ 4.84 $ 4.01

Equity
Your Equity of 62.0% is sound, providing some buffer for fluctuations in solvency, including
land price, interest rates and performance.
Pasture as % of Feed Consumed
Pasture as % of feed consumed is 65.1% so your system is considered moderate-high
supplement. Higher levels of supplement feeding increase financial risk by generally having
lower margins and higher cost of production but can offer higher returns especially at high
milk prices. Farms with a higher pasture % of diet tend to have lower costs of production, and
lower cost of production is strongly correlated with profitability.
Operating Profit Margin
The Operating Profit Margin represents the percentage of gross revenue retained as profit (for
interest payments, principal repayments, tax and true ‘profit’). The higher the figure, the
more secure the system. Target levels are related to the farm system being operated, with
high feed-input systems targeting lower operating profit margins than low feed-input systems.
Your Operating Profit Margin is 19.0% which is an average result for a moderate-high
feed-input operation. This represents an average, system with adequate margin for debt
servicing and tax payments.
Cost of Production
Cost of Production (COP) represents the net cost of producing one litre/kilogram of milk. If
gearing is high (e.g. high levels of debt) then there should be a significant gap between Cost
of Production and the milk payout to ensure there are sufficient funds for debt servicing and
tax payments. Cost of Production can also be compared across years for your enterprise and
against other farmers at varying milk prices as it is not influenced by milk revenue.
Your Cost of Production of $4.92/kgMS is reasonable, leaving a moderate margin for debt
servicing and to buffer reductions in milk price.
Your Cost of Production plus financing costs is $6.03/kgMS. This is effectively the
Milksolids price you require to breakeven and reflects your debt servicing costs. Managing
debt is also a highly important cost to control, ensuring there is a healthy margin kept between
this expense and the milk price will influence profit which can be retained.
Risk Summary
In general your risk/solvency measures are indicating a moderate-high level of risk, and a
business that is in a position to be affected by unfavourable conditions/events.


© Intelact Ltd 0800 735 588

4
KPI’S – EFFICIENCY


KPI
YOUR
FARM
WAIKATO
AVERAGE
WAIKATO
TOP 10 %
Milk Production per Hectare (kgsMS/ha) 1,157 1,196 1,510
Milk Production per Cow (kgsMS/ha) 392 360 405
Average Cost of Consumed Feed/tDM $ 326 $ 358 $ 321
Forage Cost/tDM $ 350 $ 433 $ 397
Concentrate Cost/tDM $ 385 $ 435 $ 404
Cows/Full Time staff Equivalent 131 147 176
Core per Cow Costs
$ 577 $ 617 $ 559
Core per Ha Costs per tDM Pasture Harvest $ 89 $ 101 $ 87


Your Milk Production per hectare of 1,157 kgMS is 9.7% below the Waikato Average. The
factors contributing to this are:
Milk Production
Milk Production per Cow:
• Based on Milksolids per Cow; your per cow production of 392 kgMS is higher than
the Waikato Average.
• Based on Milksolids as a Percentage of Cow Liveweight; yours at 78.3 % is midway
between the Average and/Top 10%.
Stocking Rate:
• Based on Liveweight of Cows per Hectare; your farm is carrying 1,476 kg/ha, this is
less than the Average of 1,596 kg/ha.
Feed consumed:
• Your pasture consumed per cow (estimated tDM) of 3.22 tDM is lower than the
Average of 3.33tDM.
• Your total feed consumed per cow (estimated tDM) of 5.01 tDM is higher than the
Top 10% of 4.94 tDM.
You should consider monitoring your environmental impact to ensure your asset is protected.
As well as considering regional policy that may put pressure on stocking rates and how they
are managed. Setting the stocking rate is an important strategic decision. The optimal stocking
rate should be based on the historical pasture harvest for your farm and the resources you
have available but focus should also be given to maximising pasture consumed per cow.
Cost of Consumed Feed
The Average Cost of Feed Consumed is a weighted average of the cost of pasture, forage
and concentrates. In almost any system, feed costs are one of the two highest costs, along
with labour (imputed & paid). It is one area that has significant potential for improvement in
profitability due to the scale of the expense.
The cost of feed has three components:
• Direct (or purchase) costs.
• Variable costs – a proportion of some farm working expenses that should be attributed to
the particular feed type e.g. labour, repairs & maintenance, and vehicle expenses.
• Capital costs – costs attributed to owning capital items required for feeding e.g. the land
for growing pasture, feed pads for forage, silage wagons, in-shed feeding systems, etc.

© Intelact Ltd 0800 735 588

5
Your Average Cost of Feed Consumed, of $326/tDM, is comparable to the Top 10%. The
main driver is the cost of pasture, particularly the capital cost but this can be diluted and
reduced by a high pasture harvest.
Your Cost of Pasture of $305/tDM is comparable with the Top 10%. T his is being
significantly influenced by your average pasture harvest, high land value and overall level of
capital investment and your average Direct Pasture Costs (which includes pasture
maintenance & renovation, greenfeed crops, fertiliser, and hay & silage conservation on the
dairy unit).
Your Cost of Forage of $350/tDM is very low compared to the Top 10%. This is due to the
proportion of homegrown vs bought in feeds, where having a higher amount of homegrown
feed whether on the home block or run off reduces the average cost of forage. As well as your
average variable expenses and capital expenses. The proportion of your total forage produced
on land you own or lease (excluding pasture silage and hay produced on the milking area) is
100%. This is significantly higher to than the benchmarks. Your high level of forage use
(19.7% of the diet) makes the cost of forage of significant relevance in your system.
Your Cost of Concentrates of $385/tDM is very low compared to the Top 10%. This is low
due to your low average purchase price. Your high level of concentrate use (15.2% of the
diet) makes the cost of concentrate of significant relevance in your system.

Labour Efficiency
Labour efficiency is an area that holds significant potential for improvements in profitability
as it is a highly ‘elastic’ cost, and one of the largest expenses on the farm. These ratios include
an allowance for the owner’s time as well as an allowance for other people who are
completing work but not drawing a monthly wage. As a result improvements in these ratios
can lead to either cost savings or more time being available to pursue other interests.
Your Labour Efficiency of 131 cows milked per full time staff equivalent (Cows/FTE) is
comparatively low compared to the Waikato Average and Top 10%. This is an area for further
improvement where possible.
Your Management & Staff Cost per Cow (including imputed or “unpaid” labour) of $548 is
comparatively high compared to the Waikato Average and Top 10%. This is a potential area
for further profitability gains.
Core Costs
Pasture-based dairying has a high proportion of variable costs. In businesses such as this
there are not significant opportunities to increase revenue (i.e. milk production) to “water
down” the impact of high costs. Effectively businesses with a high proportion of variable
costs have no a lternative but to control these variable costs if they are to improve
profitability.
Your Core per Cow Cost of $577 is good compared to the Waikato Average. This is a result
of your good cost control in some areas, particularly grazing, electricity, freight, other
expenses, R&M and depreciation. Yet high costs in vehicles, animal health, breeding, dairy
shed and standing charges. This is a strong feature of your operation, and a good base from
which to increase production and profitability return for the expenses.


© Intelact Ltd 0800 735 588

6
Your Core Cost/ha/tDM Pasture Harvest of $89 is good compared to the Top 10%. This is
correlated to profitability and is influenced by your good cost control in administration costs,
non-N fertiliser, standing charges, depreciation and repairs and maintenance. Yet high costs in
greenfeed cropping and pasture maintenance. Lifting pasture harvest without increasing costs
would dilute these costs over a larger base, improving the KPI.


HUMAN RESOURCES

Your HR Score is 7.9/15 compared to the Average of 7.4/15.

These results have been compiled by comparing all participants in the DBOY competition.
Areas that reflect good people management include good staff stability, low non-wage costs,
low non scheduled hours lost, investment in formal training, high labour utilisation, and low
direct wage costs.


See No8HR report and appendices for more detail.


© Intelact Ltd 0800 735 588

7
ENVIRONMENTAL IMPACT

Your Environmental Score is 60%.

The environmental assessment covered four areas of farm management that are important for
designing and running sustainable and resilient agri-businesses. These measures are:
productivity, efficiency, effluent management and soil protection.

60% is a reasonably good result. This is derived from reasonable levels of productivity in
terms of profit/kg N leached combined with low levels of nitrogen and phosphate losses.
Progress should be made by expanding the effluent area to further improve the efficiency of
nutrients applied in this resource, this will allow you to lower your use of soluble nitrogen
fertiliser.

Planning for constant improvement of nutrient use efficiency by monitoring soil fertility
levels and aiming for optimum soil nutrient status should be a focus for any farming business
with the goal of future viability.

Using your Overseer nutrient budget in conjunction with advice from a trained nutrient
management specialist will help manage nutrient efficiency.

Environmental protection is vital to the protection of your biggest asset. Maintaining the
quality of your land and factoring in efficient use of resource use into your decision making
will determine the future sustainability of your farm and thus your business.

See Headlands report and appendices for more detail.

Headlands
Designing farm systems with the future in mind!
Align your business with your values and maximise profits while operating within
resource constraints.
Our unique approach helps you create a resilient business positioned for long term
success.
Qualified consultants with expertise in effluent system design, nutrient efficiency,
business strategy and finance.
Call us today to optimise your farm’s potential.

www.headlandsenviro.co.nz




© Intelact Ltd 0800 735 588

8
SUMMARY AND CONCLUSION


Key Business Strengths
• Good per cow milk production
• Good core per cow costs and core per hectare cost per tDM pasture harvested.

Areas for consideration or further investigation:
• Cost of production plus financing
• Review effluent and nutrient use and efficiency
• Drought resilience – review stocking rate or consider summer crops to reduce
requirement of extra supplement being imported and ensure cow feed intake is
maintained at a high level.

When implementing new strategies to address these areas of opportunity in your business care
should be taken to ensure your areas of strength are not compromised.
The following pages provide the graphical assessment of your farm business (Dot report),
definitions of the KPI’s used, and finally details from the Red Sky programme for your farm.
Also attached are the environmental and labour analyses of your business. If you have further
questions please don’t hesitate to contact me, your consultant or any of the team at Intelact,
Headlands or No8HR.


Best wishes,






Alanah Bunyard
Intelact Ltd.

Summary Farm Performance - Dairy
D & B Farmer
X Farm Ltd
Monday 19 May 2014 15:21
2010/11
X Farm
DBOY
2011/12
X Farm
DBOY
2012/13
X Farm
DBOY
.
2012/13
Waikato
Average
2012/13
Waikato Top
10%
PHYSICAL PARAMETERS
Peak Milking Cow Numbers 430 440 440 445 461
Total Effective Dairy Hectares 0.0 155.0 155.0 136.0 126.8
Effective Milking Hectares 151.0 149.6 149.0 134.1 123.7
Cows per Milking Hectare 2.85 2.94 2.95 3.32 3.73
Milksolids per Cow 374 425 392 360 405
Milksolids per Milking Hectare 1,064 1,249 1,157 1,196 1,510
Milksolids Price ($/kgMS) $ 7.59 $ 6.07 $ 5.84 $ 5.85 $ 5.85
Pasture Dry Matter Harvested (tDM/Ha) 10.6 12.5 10.7 11.5 13.7
REVENUE
Milk Sales $ 1,255,347 $ 1,183,494 $ 1,068,502 $ 980,247 $ 1,142,602
Total Operating Revenue (TOR) $ 1,314,497 $ 1,207,642 $ 1,151,805 $ 1,075,567 $ 1,244,461
GROSS REVENUE (GR) $ 1,302,737 $ 1,246,842 $ 1,161,405 $ 1,064,551 $ 1,234,636
Gross Revenue per Hectare $ 8,630 $ 8,333 $ 7,794 $ 7,939 $ 9,983
Gross Revenue per Cow $ 3,030 $ 2,834 $ 2,640 $ 2,392 $ 2,678
EXPENSES
Total Operating Expenses (TOE) $ 667,544 $ 840,528 $ 717,378 $ 683,666 $ 686,793
GROSS OPERATING EXPENSES (GOE) $ 821,720 $ 965,003 $ 940,252 $ 859,974 $ 841,195
Gross Operating Expenses per Hectare $ 5,443 $ 6,449 $ 6,310 $ 6,414 $ 6,801
Gross Operating Expenses per Cow $ 1,911 $ 2,193 $ 2,137 $ 1,933 $ 1,825
Debt Servicing & Non-Operating Expenses
Total Debt Servicing & Non-Operating Exp $ 287,308 $ 263,170 $ 265,626 $ 375,630 $ 383,223
Operating Surplus (TOR - TOE) $ 646,953 $ 367,114 $ 434,427 $ 391,901 $ 557,668
Change in Working Capital $ 69,062 ($ 543,324) $ 162,975 $ 10,778 $ 44,689
KEY PERFORMANCE INDICATORS
OPERATING PROFIT (GR - GOE) $ 481,016 $ 281,839 $ 221,153 $ 204,577 $ 393,441
Operating Profit per Hectare $ 3,186 $ 1,884 $ 1,484 $ 1,526 $ 3,181
Operating Profit per Cow $ 1,119 $ 641 $ 503 $ 460 $ 853
Total Assets per Ha at Start of Year (4-Yr Av Values) $ 51,445 $ 50,737 $ 49,733 $ 66,129 $ 66,717
Total Assets per Ha at Start of Year (Market Values) $ 51,445 $ 50,737 $ 49,733 $ 66,802 $ 67,163
Total Assets at End of Year at 4-Yr Av Values $ 7,883,572 $ 8,107,464 $ 8,344,747 $ 8,960,556 $ 8,492,836
Total Liabilities at End of Year $ 2,774,723 $ 2,972,148 $ 3,174,915 $ 3,196,435 $ 2,904,315
EQUITY at 4-Yr Av Values at End of Year $ 5,108,849 $ 5,135,316 $ 5,169,832 $ 5,764,120 $ 5,588,521
EQUITY % at 4-Yr Av Values 64.8 % 63.3 % 62.0 % 64.3 % 65.8 %
Change in Equity at 4-Yr Av Values ($ 374,121) $ 45,787 $ 433,416 $ 166,453 $ 342,354
RETURN ON CAPITAL (ROC) at 4-Yr Av Values 6.4 % 4.2 % 3.3 % 3.0 % 5.2 %
Return on Assets (ROA) at 4-Yr Av Values 6.4 % 4.2 % 3.1 % 2.9 % 5.1 %
ROA including Capital Gain at 4-Yr Av Values 1.7 % 3.9 % 8.3 % 4.9 % 9.3 %
RETURN ON EQUITY (ROE) at 4-Yr Av Values 5.4 % 2.5 % 0.6 % -0.8 % 2.7 %
ROE including Capital Gain at 4-Yr Av Values -1.6 % 2.1 % 9.1 % 2.2 % 9.2 %
OPERATING PROFIT MARGIN 36.9 % 22.6 % 19.0 % 19.2 % 31.9 %
Cost of Production per kg Milksolids $ 4.82 $ 4.82 $ 4.92 $ 4.84 $ 4.01
Financing Costs per kg Milksolids $ 1.41 $ 1.09 $ 1.29 $ 1.97 $ 1.61
Cost of Prod’n + Financing Cost per kgMS $ 5.96 $ 5.66 $ 6.03 $ 6.39 $ 5.37
Total Operating Expenses as % Gross Revenue 51.2 % 67.4 % 61.8 % 64.2 % 55.6 %
Financing Costs as % Gross Revenue 17.4 % 16.3 % 19.2 % 29.7 % 24.3 %
Core per Cow Cost $ 613 $ 699 $ 577 $ 617 $ 559
Core per Hectare Cost $ 846 $ 1,330 $ 956 $ 1,170 $ 1,200
Core per Hectare Cost per tDM Pasture Harvest $ 80 $ 106 $ 89 $ 101 $ 87
Management + Staff Costs per Cow $ 474 $ 553 $ 548 $ 422 $ 361
Cows per Full Time Staff Equivalent 106 131 131 147 176
Total Feed/Supplement Costs per Cow $ 624 $ 575 $ 777 $ 705 $ 706
Pasture as % of Total Consumed 73.3 % 76.1 % 65.1 % 73.7 % 72.0 %
Average Cost of All Consumed Feed (/tDM) $ 337 $ 334 $ 326 $ 358 $ 321
Pasture Cost (Per tDM) $ 306 $ 311 $ 305 $ 331 $ 291
Forage Cost (/tDM Consumed incl.wastage) $ 452 $ 428 $ 350 $ 433 $ 397
Concentrate Cost (/tDM Consumed incl.wastage) $ 406 $ 396 $ 385 $ 435 $ 404
Physical Summary - Dairy
D & B Farmer
X Farm Ltd
Monday 19 May 2014 15:22
2010/11
X Farm
DBOY
2011/12
X Farm
DBOY
2012/13
X Farm
DBOY
.
2012/13
Waikato
Average
2012/13
Waikato Top
10%
PHYSICAL PARAMETERS
Peak Milking Cow Numbers 430 440 440 445 461
Effective Milking Hectares 151.0 149.6 149.0 134.1 123.7
Cows per Milking Hectare 2.85 2.94 2.95 3.32 3.73
Cow Liveweight per Milking Hectare 1,367 1,470 1,476 1,596 1,812
Comparative Stocking Rate (Red Sky) 101.0 96.7 131.1 130.4 125.8
Comparative Stocking Rate (DairyNZ) 0.0 0.0 114.3 100.2 102.5
Milksolids Price ($/kgMS) $ 7.59 $ 6.07 $ 5.84 $ 5.85 $ 5.85
Total Milksolids (Milkfat + Protein) 160,643 186,932 172,346 160,341 186,782
Milksolids per Cow 374 425 392 360 405
Milksolids as Percent of Cow Liveweight 0.0 % 85.0 % 78.3 % 74.9 % 83.4 %
Milksolids per Milking Hectare 1,064 1,249 1,157 1,196 1,510
Milkfat Percentage 4.66 % 4.58 % 4.76 % 4.93 % 4.90 %
Protein Percentage 3.55 % 3.61 % 3.55 % 3.71 % 3.75 %
Protein as a Percentage of Milkfat 76.2 % 78.8 % 74.6 % 75.3 % 76.5 %
PRODUCTIVITY MEASURE
Red Sky Dairy Productivity Ratio 0.77 0.87 0.89 0.72 0.88
PASTURE & SUPPLEMENTS
Pasture Dry Matter Harvested (tDM/Ha) 10.6 12.5 10.7 11.5 13.7
Estimated Dryland Pasture Harvest (tDM/Ha) 10.6 12.5 10.7 11.5 13.7
Estimated Irrigated Pasture Harvest (tDM/Ha) 0.0 0.0 0.0 12.1 14.3
Nitrogen Applied per Hectare 140.0 180.0 175.0 161.3 196.2
Pasture as % of Total Consumed 73.3 % 76.1 % 65.1 % 73.7 % 72.0 %
Supplement as % of Total Consumed 26.7 % 23.9 % 34.9 % 26.3 % 28.0 %
- Forage as % of Total Consumed 10.8 % 9.3 % 19.7 % 16.2 % 17.5 %
- Concentrate as % of Total Consumed 15.9 % 14.6 % 15.2 % 10.1 % 10.5 %
Pasture Consumed Per Cow (estimated tDM) 3.48 3.93 3.22 3.33 3.49
Forage Consumed Per Cow (estimated tDM) 0.59 0.55 1.13 0.85 0.98
Concentrate Consumed Per Cow (estimated tAF) 0.74 0.74 0.73 0.44 0.50
Total Consumed Per Cow (estimated tDM) 4.74 5.15 5.01 4.58 4.94
Feed Conversion Efficiency (kgsDM/kgMS) 12.46 11.94 12.37 12.25 11.71
Total Feed/Supplement Costs per Cow $ 624 $ 575 $ 777 $ 705 $ 706
Average Cost of All Consumed Feed (/tDM) $ 337 $ 334 $ 326 $ 358 $ 321
Pasture Cost (Per tDM) $ 306 $ 311 $ 305 $ 331 $ 291
- Direct Pasture Cost (Per tDM) $ 39 $ 65 $ 72 $ 64 $ 63
- Variable Pasture Cost (Per tDM) $ 62 $ 87 $ 49 $ 53 $ 42
- Capital Pasture Cost (Per tDM) $ 205 $ 159 $ 184 $ 215 $ 185
Average Cost of All Supplements (/tDM Consumed) $ 424 $ 408 $ 365 $ 434 $ 399
Forage Cost (/tDM Consumed incl.wastage) $ 452 $ 428 $ 350 $ 433 $ 397
- Purchased Forage Cost (Per tDM) $ 284 $ 256 $ 231 $ 281 $ 268
- Variable Forage Cost (Per tDM) $ 53 $ 65 $ 58 $ 50 $ 40
- Capital Forage Cost (Per tDM) $ 50 $ 42 $ 31 $ 34 $ 26
Home Produced Forage as Percent of Total 0.0 % 66.7 % 100.0 % 33.1 % 44.3 %
Concentrate Cost (/tDM Consumed incl.wastage) $ 406 $ 396 $ 385 $ 435 $ 404
- Purchased Concentrate Cost (Per tDM) $ 357 $ 344 $ 352 $ 395 $ 368
- Variable Concentrate Cost (Per tDM) $ 13 $ 19 $ 11 $ 12 $ 10
- Capital Concentrate Cost (Per tDM) $ 16 $ 13 $ 14 $ 8 $ 7
Pasture Cost (Cents Per MJ ME) 2.78 2.83 2.78 3.01 2.64
Forage Cost (Cents Per MJ ME Consumed) 4.30 4.08 3.33 4.11 3.79
Concentrate Cost (Cents Per MJ ME Consumed) 3.69 3.60 3.50 3.63 3.37
Pasture Dry Matter Harvested / Megalitre (tDM) 0.0 0.0 0.0 1.2 1.3
Megalitres Used per Hectare 0.0 0.0 0.0 10.3 10.7
MANAGEMENT & STAFF
Total 50-Hour Week Equivalent Full Time Staff 4.5 3.6 3.6 3.2 2.8
Cows per Full Time Staff Equivalent 106 131 131 147 176
Management + Staff Costs per Cow $ 474 $ 553 $ 548 $ 422 $ 361
Revenue per Full Time Staff Equivalent $ 290,789 $ 346,345 $ 322,612 $ 329,042 $ 436,499
Revenue per $1 of Employment Expense $ 6.39 $ 5.13 $ 4.82 $ 5.64 $ 7.39
Total Hours Worked per Week 224.0 180.0 180.0 161.8 141.4
Total Imputed Labour & Management $ 57,280 $ 72,400 $ 72,400 $ 59,978 $ 61,964
Financial Farm Performance - Dairy
D & B Farmer
X Farm Ltd
Monday 19 May 2014 16:14
2010/11
X Farm
DBOY
2011/12
X Farm
DBOY
2012/13
X Farm
DBOY
.
2012/13
Waikato
Average
2012/13
Waikato Top
10%
BALANCE SHEET ASSESSMENT
Total Assets at End of Year at Market Values $ 7,883,572 $ 8,107,464 $ 8,344,747 $ 9,049,639 $ 8,559,635
Total Assets at End of Year at 4-Yr Av Values $ 7,883,572 $ 8,107,464 $ 8,344,747 $ 8,960,556 $ 8,492,836
Total Liabilities at End of Year $ 2,774,723 $ 2,972,148 $ 3,174,915 $ 3,196,435 $ 2,904,315
EQUITY at Market Values $ 5,108,849 $ 5,135,316 $ 5,169,832 $ 5,853,203 $ 5,655,320
Change in Equity at Market Values ($ 374,121) $ 45,787 $ 433,416 $ 163,994 $ 352,590
EQUITY % at Market Values 64.8 % 63.3 % 62.0 % 64.7 % 66.1 %
EQUITY at 4-Yr Av Values $ 5,108,849 $ 5,135,316 $ 5,169,832 $ 5,764,120 $ 5,588,521
Change in Equity at 4-Yr Av Values ($ 374,121) $ 45,787 $ 433,416 $ 166,453 $ 342,354
EQUITY % at 4-Yr Av Values 64.8 % 63.3 % 62.0 % 64.3 % 65.8 %
Change in Equity at 4-Yr Av Values -6.8 % 0.9 % 9.2 % 3.0 % 6.5 %
PROFIT & LOSS FOR YEAR
Gross Revenue $ 1,302,737 $ 1,246,842 $ 1,161,405 $ 1,064,551 $ 1,234,636
Gross Operating Expenses $ 821,720 $ 965,003 $ 940,252 $ 859,974 $ 841,195
OPERATING PROFIT/(LOSS) $ 481,016 $ 281,839 $ 221,153 $ 204,577 $ 393,441
Operating Profit/(Loss) per Hectare $ 3,186 $ 1,884 $ 1,484 $ 1,526 $ 3,181
RETURN ON CAPITAL (ROC) at 4-Yr Av Values 6.4 % 4.2 % 3.3 % 3.0 % 5.2 %
Return on Assets (ROA) at Market Values 6.4 % 4.2 % 3.1 % 2.9 % 5.1 %
Return on Assets (ROA) at 4-Yr Av Values 6.4 % 4.2 % 3.1 % 2.9 % 5.1 %
Capital Efficiency Ratio at 4-Yr Av Values 15.8 % 15.9 % 15.1 % 12.2 % 15.1 %
Profit/(Loss) incl. Capital Gain at Market Values $ 94,655 $ 264,426 $ 620,969 $ 368,670 $ 745,955
Profit/(Loss) incl. Capital Gain at 4-Yr Av Values $ 94,655 $ 264,426 $ 620,969 $ 371,129 $ 735,719
ROA incl. Capital Gain at 4-Yr Av Values 1.7 % 3.9 % 8.3 % 4.9 % 9.3 %
PROFIT (LOSS) incl. Financing Costs $ 253,778 $ 78,739 ($ 1,251) ($ 99,960) $ 101,795
Return on Equity (ROE) at 4-Yr Av Values 5.4 % 2.4 % 0.6 % -0.8 % 2.7 %
ROE incl. Capital Gain at 4-Yr Av Values -1.6 % 2.1 % 9.1 % 2.2 % 9.2 %
RISK RATIOS
Operating Profit Margin 36.9 % 22.6 % 19.0 % 19.2 % 31.9 %
Total Operating Exp. as % Gross Revenue 51.2 % 67.4 % 61.8 % 64.2 % 55.6 %
Financing Costs as % Gross Revenue 17.4 % 16.3 % 19.2 % 29.7 % 24.3 %
Cost of Production per kg Milksolids $ 4.82 $ 4.82 $ 4.92 $ 4.84 $ 4.01
Operating Profit Per Hectare - Dairy
D & B Farmer
X Farm Ltd
Monday 19 May 2014 16:14
2010/11
X Farm
DBOY
2011/12
X Farm
DBOY
2012/13
X Farm
DBOY
.
2012/13
Waikato
Average
2012/13
Waikato Top
10%
REVENUE
Manufacturing Milk Sales $ 8,080 $ 7,583 $ 6,754 $ 6,995 $ 8,835
Quota/Contract/Dividends for Milk $ 235 $ 326 $ 416 $ 315 $ 404
Livestock Revenue $ 250 $ 412 $ 589 $ 534 $ 669
Other Revenue $ 64 $ 12 $ 34 $ 95 $ 75
Gross Revenue $ 8,630 $ 8,333 $ 7,794 $ 7,939 $ 9,983
EXPENSES
Administration $ 95 $ 126 $ 100 $ 121 $ 114
Animal Health $ 412 $ 412 $ 335 $ 268 $ 282
Breeding & Herd Testing $ 196 $ 225 $ 154 $ 159 $ 171
Dairy Shed Expenses $ 88 $ 108 $ 113 $ 82 $ 91
Electricity $ 94 $ 99 $ 110 $ 140 $ 153
Feeds / Supplements (Total) $ 1,778 $ 1,691 $ 2,295 $ 2,339 $ 2,633
- Grazing / Support Area $ 372 $ 422 $ 432 $ 762 $ 759
- Cropping (green feed) $ 38 $ 25 $ 73 $ 37 $ 37
- Grains, Pellets & Concentrates $ 851 $ 860 $ 858 $ 618 $ 731
- Forages (incl. hay, silages, byproducts) $ 517 $ 384 $ 932 $ 923 $ 1,106
Fertiliser (Total) $ 245 $ 552 $ 370 $ 504 $ 593
- Nitrogen $ 132 $ 249 $ 301 $ 233 $ 288
- Phosphate & All Other Fertiliser $ 112 $ 303 $ 69 $ 271 $ 305
Freight $ 27 $ 37 $ 26 $ 27 $ 27
Irrigation $ 0 $ 2 $ 0 $ 58 $ 88
Other Expenses $ 19 $ 38 $ 15 $ 13 $ 13
Pasture Maintenance & Renovation $ 0 $ 105 $ 165 $ 112 $ 116
Repairs & Maintenance $ 348 $ 727 $ 207 $ 270 $ 276
Standing charges $ 164 $ 192 $ 205 $ 215 $ 228
Vehicle Expenses (including fuel & oil) $ 152 $ 200 $ 275 $ 215 $ 231
Management & Staff Expenses $ 1,349 $ 1,626 $ 1,617 $ 1,400 $ 1,347
- Wages, Salaries & Employment Exp. $ 970 $ 1,142 $ 1,131 $ 953 $ 846
- Imputed Labour & Management $ 379 $ 484 $ 486 $ 447 $ 501
Depreciation $ 418 $ 310 $ 322 $ 489 $ 438
Gross Expenses $ 5,443 $ 6,449 $ 6,310 $ 6,414 $ 6,801
Gross Exp excl. Imputed Labour/Mgmt & Dep'n $ 4,646 $ 5,655 $ 5,502 $ 5,478 $ 5,862
Core per Hectare Cost $ 846 $ 1,330 $ 956 $ 1,170 $ 1,200
OPERATING PROFIT (LOSS) $ 3,186 $ 1,884 $ 1,484 $ 1,526 $ 3,181
Operating Profit Per Cow - Dairy
D & B Farmer
X Farm Ltd
Monday 19 May 2014 16:14
2010/11
X Farm
DBOY
2011/12
X Farm
DBOY
2012/13
X Farm
DBOY
.
2012/13
Waikato
Average
2012/13
Waikato Top
10%
REVENUE
Manufacturing Milk Sales $ 2,837 $ 2,579 $ 2,288 $ 2,108 $ 2,370
Quota/Contract/Dividends for Milk $ 83 $ 111 $ 141 $ 95 $ 108
Livestock Revenue $ 88 $ 140 $ 199 $ 161 $ 179
Other Revenue $ 22 $ 4 $ 12 $ 29 $ 20
Gross Revenue $ 3,030 $ 2,834 $ 2,640 $ 2,392 $ 2,678
EXPENSES
Administration $ 33 $ 43 $ 34 $ 36 $ 31
Animal Health $ 145 $ 140 $ 114 $ 81 $ 76
Breeding & Herd Testing $ 69 $ 76 $ 52 $ 48 $ 46
Dairy Shed Expenses $ 31 $ 37 $ 38 $ 25 $ 25
Electricity $ 33 $ 34 $ 37 $ 42 $ 41
Feeds / Supplements (Total) $ 624 $ 575 $ 777 $ 705 $ 706
- Grazing / Support Area $ 131 $ 143 $ 146 $ 230 $ 204
- Cropping (green feed) $ 13 $ 9 $ 25 $ 11 $ 10
- Grains, Pellets & Concentrates $ 299 $ 292 $ 290 $ 186 $ 196
- Forages (incl. hay, silages, byproducts) $ 182 $ 131 $ 316 $ 278 $ 297
Fertiliser (Total) $ 86 $ 188 $ 125 $ 152 $ 159
- Nitrogen $ 47 $ 85 $ 102 $ 70 $ 77
- Phosphate & All Other Fertiliser $ 39 $ 103 $ 23 $ 82 $ 82
Freight $ 10 $ 12 $ 9 $ 8 $ 7
Irrigation $ 0 $ 1 $ 0 $ 17 $ 23
Other Expenses $ 7 $ 13 $ 5 $ 4 $ 4
Pasture Maintenance & Renovation $ 0 $ 36 $ 56 $ 34 $ 31
Repairs & Maintenance $ 122 $ 247 $ 70 $ 81 $ 74
Standing charges $ 58 $ 65 $ 70 $ 65 $ 61
Vehicle Expenses (including fuel & oil) $ 53 $ 68 $ 93 $ 65 $ 62
Management & Staff Expenses $ 474 $ 553 $ 548 $ 422 $ 361
- Wages, Salaries & Employment Exp. $ 341 $ 388 $ 383 $ 287 $ 227
- Imputed Labour & Management $ 133 $ 165 $ 165 $ 135 $ 134
Depreciation $ 147 $ 105 $ 109 $ 147 $ 118
Gross Expenses $ 1,911 $ 2,193 $ 2,137 $ 1,933 $ 1,825
Gross Exp excl. Imputed Labour/Mgmt & Dep'n $ 1,631 $ 1,923 $ 1,863 $ 1,650 $ 1,573
Core per Cow Cost $ 613 $ 699 $ 577 $ 617 $ 559
OPERATING PROFIT (LOSS) $ 1,119 $ 641 $ 503 $ 460 $ 853
Operating Profit Per MilkSolids
D & B Farmer
X Farm Ltd
Monday 19 May 2014 16:15
2010/11
X Farm
DBOY
2011/12
X Farm
DBOY
2012/13
X Farm
DBOY
.
2012/13
Waikato
Average
2012/13
Waikato Top
10%
REVENUE
Manufacturing Milk Sales $ 7.59 $ 6.07 $ 5.84 $ 5.85 $ 5.85
Quota/Contract/Dividends for Milk $ 0.22 $ 0.26 $ 0.36 $ 0.26 $ 0.27
Livestock Revenue $ 0.24 $ 0.33 $ 0.51 $ 0.45 $ 0.44
Other Revenue $ 0.06 $ 0.01 $ 0.03 $ 0.08 $ 0.05
Gross Revenue $ 8.11 $ 6.67 $ 6.74 $ 6.64 $ 6.61
EXPENSES
Administration $ 0.09 $ 0.10 $ 0.09 $ 0.10 $ 0.08
Animal Health $ 0.39 $ 0.33 $ 0.29 $ 0.22 $ 0.19
Breeding & Herd Testing $ 0.18 $ 0.18 $ 0.13 $ 0.13 $ 0.11
Dairy Shed Expenses $ 0.08 $ 0.09 $ 0.10 $ 0.07 $ 0.06
Electricity $ 0.09 $ 0.08 $ 0.10 $ 0.12 $ 0.10
Feeds / Supplements (Total) $ 1.67 $ 1.35 $ 1.98 $ 1.96 $ 1.74
- Grazing / Support Area $ 0.35 $ 0.34 $ 0.37 $ 0.64 $ 0.50
- Cropping (green feed) $ 0.04 $ 0.02 $ 0.06 $ 0.03 $ 0.02
- Grains, Pellets & Concentrates $ 0.80 $ 0.69 $ 0.74 $ 0.52 $ 0.48
- Forages (incl. hay, silages, byproducts) $ 0.49 $ 0.31 $ 0.81 $ 0.77 $ 0.73
Fertiliser (Total) $ 0.23 $ 0.44 $ 0.32 $ 0.42 $ 0.39
- Nitrogen $ 0.12 $ 0.20 $ 0.26 $ 0.19 $ 0.19
- Phosphate & All Other Fertiliser $ 0.11 $ 0.24 $ 0.06 $ 0.23 $ 0.20
Freight $ 0.03 $ 0.03 $ 0.02 $ 0.02 $ 0.02
Irrigation $ 0.00 $ 0.00 $ 0.00 $ 0.05 $ 0.06
Other Expenses $ 0.02 $ 0.03 $ 0.01 $ 0.01 $ 0.01
Pasture Maintenance & Renovation $ 0.00 $ 0.08 $ 0.14 $ 0.09 $ 0.08
Repairs & Maintenance $ 0.33 $ 0.58 $ 0.18 $ 0.23 $ 0.18
Standing charges $ 0.15 $ 0.15 $ 0.18 $ 0.18 $ 0.15
Vehicle Expenses (including fuel & oil) $ 0.14 $ 0.16 $ 0.24 $ 0.18 $ 0.15
Management & Staff Expenses $ 1.27 $ 1.30 $ 1.40 $ 1.17 $ 0.89
- Wages, Salaries & Employment Exp. $ 0.91 $ 0.91 $ 0.98 $ 0.80 $ 0.56
- Imputed Labour & Management $ 0.36 $ 0.39 $ 0.42 $ 0.37 $ 0.33
Depreciation $ 0.39 $ 0.25 $ 0.28 $ 0.41 $ 0.29
Gross Expenses $ 5.12 $ 5.16 $ 5.46 $ 5.36 $ 4.50
Gross Exp excl. Imputed Labour/Mgmt & Dep'n $ 4.37 $ 4.53 $ 4.76 $ 4.58 $ 3.88
Core Cost Structure per kg Milksolid $ 3.71 $ 3.97 $ 3.65 $ 3.83 $ 3.04
OPERATING PROFIT (LOSS) $ 2.99 $ 1.51 $ 1.28 $ 1.28 $ 2.11
Red Sky Farm Performance Analysis


Red Sky Agricultural Pty Ltd
1
Red Sky KEY PERFORMANCE INDICATORS – DAIRY
The following Key Performance Indicators are all included in Red Sky Farm Performance Analysis
and are split between FOUR of the five primary measures: Profitability, Efficiency, Risk and
Solvency. The fifth measure, Liquidity, relates to cash flow and Key Performance Indicators for
this measure are available in additional reports. These Key Performance Indicators are not
meant to be an exhaustive list but are meant to represent the more important indicators that
farmers should monitor regularly.
PROFITABILITY
The following measures assess the level of profitability of a business. The first four measures
listed below directly describe the performance of the business with the top two being reliable
comparative measures across districts, and between farming enterprises and even countries.
The final two physical measures can only be used to indicate the likely level of profit and they
rely on a correlation factor rather than assessing profit directly.
Return on Capital = Operating Profit / Total Assets under Management at Start of Year x 100.
This should be assessed with capital gains/losses both included and excluded. This
percentage measure of profitability records the return on total assets employed in the
business and is arguably the most important measure of business performance.
Operating Profit per Hectare = Operating Profit / Effective Milking Area. This measure of
profitability records the level of profit against the largest capital asset of the business and
as a result should be closely correlated to Return on Assets, although it needs to be
interpreted in light of the wide variation in land values.
Return on Equity = Operating Profit – Total Financing Costs / Equity at Start of Year x 100.
This should be assessed with capital gains/losses both included and excluded. This
percentage measure of profitability records the return on equity utilised in the business.
Pasture Dry Matter Harvested (tDM/ha) – this is the equivalent tonnage of 11.0 MJ
ME/kgDM pasture consumed per hectare. Any hay and silage conserved on the farm is
included in the total pasture yield. This is a measure that is correlated to profitability in
pasture based farming systems, although it needs to be interpreted for land quality and
farming system (e.g. good versus poor soils, irrigation versus dryland).
EFFICIENCY
Measures of efficiency assess the level of performance of a business in a specific area. The
measures below assess performance in the use of assets, pasture, supplements and staff.
Improvements in efficiency in one particular area may not necessarily lead to an improvement
in profitability but will provide definitive insights into how profitability might be improved.
Milksolids per Hectare – this records the amount of milk produced per hectare and as a result
is closely related to gross revenue per hectare and would indicate the likely level of
productivity of the business. This is a measure that is correlated to profitability in pasture
based farming systems with low to moderate levels of supplement, although it needs to be
interpreted in light of the wide variation in farming systems.
Pasture Cost (per tDM) = Direct Pasture Cost + Variable Pasture Cost + Capital Pasture Cost.
This is a complete assessment of pasture costs (not a gross margin cost) and is a measure
of how efficiently pasture is being grown and fed to livestock.
Forage Cost (per tDM Consumed including Wastage) = (Purchased Forage Cost + Variable
Forage Cost + Capital Forage Cost) / Weighted Average Wastage Rate. This is a complete
assessment of forage costs (not a gross margin cost) and is a measure of how efficiently
forages are being purchased and fed to livestock.
Concentrate Cost (per tDM Consumed including Wastage) = (Purchased Concentrate Cost
+ Variable Concentrate Cost + Capital Concentrate Cost) / Weighted Average Wastage
Rate. This is a complete assessment of concentrate costs (not a gross margin cost) and is
a measure of how efficiently concentrates are being purchased and fed to livestock.
Cows per Full Time Staff Equivalent = Peak Milking cow Numbers / Total 50-Hour Week
Equivalent Full Time Staff. This measure of efficiency records the number of cows that are
being milked per 50-Hour Full Time Staff Equivalent.
Red Sky Farm Performance Analysis


Red Sky Agricultural Pty Ltd
2

Core per Cow Cost = (Animal Health + Breeding + Dairy Shed Expenses + Electricity +
Grazing/Agistment + Freight + Other Expenses + 50% Repairs & Maintenance + 30%
Standing Charges + 70% Vehicle Expenses + 50% Depreciation) / Peak Milking Cow
Numbers. This measure of efficiency determines the underlying livestock cost structure of
the business after removing the major cost centres influenced by different farming
systems.
Core per Hectare Cost per tDM Pasture Harvest = (Administration + Cropping (green feed)
+ Phosphate & All Other Fertiliser + Pasture Maintenance & Renovation + 50% Repairs &
Maintenance + 70% Standing Charges + 30% Vehicle Expenses + Weed & Pest + 50%
Depreciation) / Effective Milking Area / tDM Pasture Harvest. This measure of efficiency
determines the underlying land cost structure of the business after removing the major
cost centres influenced by different farming systems.
RISK
Measures of risk assess the degree to which a business may move between profit and loss.
These measures can not be assessed as either ‘better’ or ‘worse’ in one business compared to
another, nor do these measures predict profit, as this will depend on the farming system being
run. Highly productive farming systems may have a higher risk profile but this may be
essential to attain higher levels of profit. However the higher risk profile does mean that they
may be more exposed to changes in product prices or supplement prices.
Operating Profit Margin = Operating Profit / Gross Revenue x 100. This percentage measure
of risk records the proportion of Gross Revenue that is retained as profit. As this measure
takes account of changes to the amount of livestock and feed on hand, depreciation,
imputed labour and management, and other adjustments to revenue and expenses, this is
a more complete measure than Operating Expenses as % of Gross Revenue.
Cost of Production per kg Milk (or Gross Operating Expenses less Non-Milk Revenue per kg
Milk) = (Manufacturing Milk Sales – Operating Profit) / Total Milk Sold. This measure of
risk records the effective nett cost of producing each kilogram of milk and can be used for
break-even analysis.
Pasture as % of Total Consumed = Energy Consumed from Pasture on Farm / Total Energy
Consumed by Livestock on Farm x 100. This percentage measure of risk records the
proportion of the overall diet that is composed of pasture grown on the farm.
SOLVENCY
Measures of solvency assess the confidence with which a business can meet it’s financial
obligations as they fall due. These measures can not be assessed as either ‘better’ or ‘worse’
in one business compared to another, nor do these measures predict profit. The
appropriateness of the level of debt, and the proportion of revenue being used to service this,
should be interpreted after an assessment of the level of predicted or actual profit as well as
the ability and risk profile of the stakeholders.
Equity % = Equity / Total Assets x 100. This is a percentage measure of risk and solvency.


Additional definitions of KEY PERFORMANCE INDICATORS can be viewed at
www.redskyagri.com/file/pdf/RedSkyKPIsDairy.pdf
Definitions of TERMS used in RED SKY can be viewed at
www.redskyagri.com/file/pdf/RedSkyDefinitions.pdf

Key Points to Building Resilience into your Business 
1. Find the balance between production efficiency and resilience (Sweet Zone) 
2. Develop the ability to plan and plan to change  
3.  Maintain healthy levels of equity  
4.  Test and mitigate your business for downside risk (low milk payout/drought etc) 
5. Capture upside risk if you can without increasing business risk (debt/capital infrastructure) 
6.  Farm within the constraints of your specific farm  
(Soil, water, climate, animals, HR skills, risk preferences) 
7. Enjoy what you are doing and create a high level of well‐being 
The Sweet Zone 
Finding the balance for your farming business between 
diminishing marginal returns, profit and productivity, and risk. 
The graphs below illustrate that increasing milk production and the intensity of a farming system (blue line) through 
greater inputs is not linear. There is a diminishing return on capital with increased intensity and risk (yellow line). 
Increased business risk associated with increased farming intensity means that volatility (i.e.; climatic, irrigation 
constraints, commodity prices) can result in heightened vulnerability and increased risk of failure to the business.  
The green zone in these illustrations indicates the “Sweet Zone”. 
Over  the  last  decade  the  range  of  farm  systems  in 
N.Z  has  broadened.    With  a  considerable  swing 
towards system 4 and 5 farms, using higher levels of 
imported supplementary feeds. 
The  range  of  dairy  farming  systems  as  defined  by 
the DairyNZ classification system are: 
1.    All self‐contained 
2.    4‐14% feed imported 
3.    10‐20% feeds imported to extend lactation 
4.    20‐30% of overall feeds imported 
5.    25‐50% of feeds imported all year 
Keeping farms across all of the above   classification 
systems  in  the  “Sweet  Zone”  means  creating 
farming  systems  that  have  a  higher  level  of 
resilience  and  an  ability  to  absorb  the  shocks 
created by volatility. These farm systems are able to 
manage  shocks  well  because  the  farmer  has  an 
optimised  system  in  place  to  maintain  cost  control, 
resource efficiency and decision making processes. 
   
   
T: 07 870 4901 F: 07 870 5408 PO Box 502, Te Awamutu 3840 www.no8hr.co.nz
TIPS FOR INCREASING YOUR DBOY HR SCORE
 
Well done on entering the DBOY of the year competition. In the HR section of the
competition we measure the outputs that good HR practices will deliver for your business.
Below are some tips on the inputs that will help you achieve these:
1. Have a clear strategy in place to attract and retain the best people. Understand
what you have to offer employees in comparison to other dairy farms. We
recommend looking at the unique things about you (as business owners), your
managers and your farm that are ‘marketable’ as well as the attributes of your role
(pay, time off, housing, dairy, location etc).


2. Most of our clients want employees with ‘the right attitude’ and most of our
employees want employers with ‘the right attitude’. Clarifying what this means in
terms of your expectations of your employees and also what they want from you
helps you all to be on the same page.


3. Understand the skills, abilities, personality, values and ambitions of your employees will
help you manage each person better. Employers with a good understanding of
each employee can create a plan that overlaps their needs and yours as much as
possible.


4. Involve your employees in the decisions that impact on their work. Although you may
have strong ideas on how you like things done, allowing your employees input and
the opportunity to discuss things with you will increase their commitment to doing
things your way – it will also help you get different ideas on how things can be done
differently and potentially more effectively in your business.


5. A positive team environment is important to most employees. Dealing with conflict
quickly and constructively will help create a constructive team environment and
demonstrate leadership in your business.


6. Feedback is important to employee motivation. The best employers provide
employees with regular feedback on their performance, accomplishments, learning
requirements and areas for development.


7. Understand what motivates people. Complex reward schemes have little value to
employees who are better motivated by other things (e.g, sincere appreciation).
Contrary to popular belief most people are not motivated by money.


8. In dairy businesses with more than one staff, fairness is important. Perception of unfair
treatment can impact on an employee’s level of engagement and the team
environment. Fairness does not necessarily mean the exact same treatment of
everyone in all respects.