Results of data received through the Welsh EU Conditional Aid Scheme

Transcription

1 Results of data received through the Welsh EU Conditional Aid Scheme 1

2 Contents 1. Introduction 5 Background to the Welsh Conditional Aid Scheme 5 Market conditions 5 Farmers and responses 5 Definitions 6 2. Financial results 7 Introduction 7 Note on quartiles 7 Physical key data 7 Milk price 8 Output 9 Costs 10 Variable costs 11 Overhead costs 14 Profitability 15 Profitability and calving pattern 15 Key financial results 16 Comparison with 2017 GB Evidence Report Data 18 Organic farming Farm structure 21 Farm area and area used for the dairy enterprise 21 Stocking rate and farm size 21 Cropping and grass areas including categorisation by herd size 22 Herd sizes of respondents 23 Business structure 23 Number of proprietors 24 Proprietors age 24 Land occupancy structure 25 Total labour units 26 Farm system (conventional or organic) 27 Other farm enterprises Greenhouse gas emissions indicators 38 Background to the potential use of these indicators 38 Animal efficiency (milk solids per cow liveweight) 38 Concentrate feed rate (kg DM/l) 39 Age at first calving 40 Slurry and manure storage 41 Slurry and manure spreading method 42 Level of artificial nitrogen application Future intentions 44 Results and comparison with 2014 Welsh Dairy Farmer Survey 44 Milk production intentions in next five years 44 Exits 45 Analysis and results of succession plan questions 46 Potential impact of intentions on milk production 47 Analysis and results of organic questions 47 Analysis and results of implementing changes question including categorising 47 Renewable energy technology on farm 48 Results of future direction of business Conclusions and final thoughts Appendices 51 Annex on farm profitability and farm size charts References Milk production results comparison with Calving pattern 31 Grazing period 31 Milking frequency, including by herd size 33 Milk production level, including by herd size 33 Butterfat and protein: average levels, including by calving pattern and herd size 34 Milk recording contracts, including by calving pattern and herd size 35 Type of milk contract and milk buyers 36 2

3 Summary of key messages Average herd size and farm area The average herd size in the survey was 169 cows and the dairy farm area was 108 hectares. Milk price and yield Contract type Growth in herd size Milk output by farm size Business structure Business structure and farm size Number of proprietors Farmers age Farmers age and herd size Land occupation Land occupation and herd size Labour use Labour use per cow The average milk price recorded was 22.7 pence per litre (ppl). Average milk yield per cow per year was 7,080 litres. Five per cent of farms have aligned milk contracts that pay according to costs of production (most likely for liquid milk) and another 48 per cent of farms are on another liquid milk contract, 41 per cent are supplying milk solid contracts, five per cent on balancing contracts and six per cent with other arrangements. Farms in the top quartile of performance, measured by dairy profit per litre of milk, are more likely to have aligned milk contracts. In 2014, 36 per cent of dairy farms in Wales had more than 150 cows. By 2017, this had risen to 44 per cent demonstrating the growth in the average herd size. A third of farms are in herd sizes of fewer than 100 cows and are contributing 10 per cent of the milk production, while, at the larger end, fewer than two per cent of herds are producing 13 per cent of the milk production. 76 per cent of dairy farms in Wales, are partnerships. 15 per cent are companies and seven per cent are sole traders. The percentage registered as companies has risen sharply from nine per cent since Very small farms (10 49 cows) are three times more likely to be sole traders than any other size category. Partnerships are dominant business types for all farm sizes until herds exceed 500 cows. Limited companies then account for the greatest share. The most common number of business proprietors is two at 38 per cent of farms, closely followed by three proprietors, which accounted for 34 per cent. About one per cent of farms had in excess of six proprietors in the farm business. The most common age bracket for proprietors was over 60 years at 37 per cent. Nineteen per cent were 40 years or younger and another 17 per cent were less than 50 years but over 40 years. The larger the herd, the younger the proprietors ages are likely to be. The average age of proprietors operating herds of 500 cows or more is 51 years, whereas the average age of small farms with fewer than 50 cows is almost 60 years. Almost half (49 per cent) of farms are wholly owned by the occupants. A further 39 per cent of farms are part-owned, part-rented. This could be owning only one or two hectares, renting only one or two hectares or anything in between. This relationship is very similar to Smaller farms (fewer than 150 cows) are more likely to be wholly owned (about 60 per cent), than larger farms, which falls to about 40 per cent over 150 cows. All joint ventures or contractfarmed operations have over 300 cows. There are no very large farms (over 500 cows) that are totally rented. The average farm uses about 3½ staff on the farm. This represents a full-time worker for every 49 cows. About a quarter of this is part-time labour, the rest fully employed on the farm. About 70 per cent of the workforce comes from family labour, over half of which is unpaid. More labour time is spent per cow on smaller farms; very small farms of fewer than 50 cows spend the equivalent of over 645 per cow on labour per year. On very large farms, this falls to less than 300 per cow. Organics Slightly over six per cent of farms are registered as organic, up from five per cent in Organic milk price averaged 13ppl more than non-organic milk. This is a 60 per cent premium. Organic farms receive far more income (over six times more) from Rural Development subsidies than non-organic farms. There is a slightly higher percentage of land ownership, with organic farms at 57 per cent compared with 49 per cent on non-organic. Herd size and other farm activities Calving pattern Grazing days Larger dairy farms in Wales are more specialised in dairy farming, with fewer other farming activities. Smaller dairy enterprises are more inclined to have other enterprises on the farm. Eighty-one per cent of dairy herds operate an all-year-round calving pattern. Spring block calving accounted for eight per cent and autumn herds about six per cent with another four per cent operating an unspecified block-calving pattern. Two-thirds of farms (and 56 per cent of cows) graze their cows for between 183 and 273 days per year. Larger herds tend to graze for longer (seven per cent of farms and 12 per cent of cows) at over 273 days per year or not at all (five per cent of farms accounting for 10 per cent of cows). 3

4 Grazing days and profits Milking frequencies and milk solids Calving pattern, yields and milk solids Yield and herd size Milk recording programmes Purchased feed per litre Marginal cost of additional milk yield from feed Those at the extremes that either graze for over nine months (273 days) or not at all are making more money per litre than those in between. The feed cost per cow and per litre falls sharply from 10ppl to 4.5ppl as the number of grazing days increases from zero to over 274. The proportion of milk solids is far higher at over nine per cent for once-a-day milked herds, compared with 7.14 per cent for three times daily milked herds. Milk solids, both butterfat and proteins are higher for the spring-calving herds, and lowest for the all-year-round calving herds. Milk yields rise as herd size increases from 5,200 litres per cow in the smallest herds, peaking at 7,300 litres for the cow herd size. Most farms that have a milk-recording programme make slightly more money than those that don t, per litre of milk. They also tend to have considerably more cows. More purchased feed is required for higher-yielding cows. Weights vary from 0.2kg/litre for low-yielding cows to over 0.5kg/litre for high-yielding cows. The cost implication is a variation of 5ppl to 10ppl. Feeding cows more concentrate to raise milk yield costs more. The marginal cost (of additional feed required for an additional litre of milk) rises from 6ppl in low-yielding herds to nearly 20ppl for a 10,000 litre per year/cow. Age of first calving The most common age for first calving is 24 months, although there is a considerable tail to 30 months. Manure and slurry storage Manure and slurry spreading Bagged nitrogen Bagged nitrogen use by grazing days Increasing production Herd growth and farmer age Exits and farm size Future intentions on farm size Future intentions and contract type Changes to farm performance Impact of production intentions Most Welsh dairy farmers store their slurry in lagoons, usually earth walled, concrete panels or a slurry tower. A third of farmers have a field heap for their manure storage. Thirty-four per cent of farms use a slurry tanker to spread their slurry, with 28 per cent using an umbilical pipe. Muck spreaders are used to disperse the manure. The average application of nitrogen fertiliser per year is about 200kg per hectare. There is a small trend of increasing fertiliser as stocking rate increases from about 150kg/ha for 0.5 grazing livestock unit (GLU (equivalent of one cow)) per hectare to about 240kg per hectare for stocking rates at three GLU per hectare. More nitrogen is used on farms where the cows are grazed for over 274 days per year at approximately 210kg/ha/year. The next highest category is the 0 to 90 days per year at 205kg/ ha/year and closely followed by the housed 365 cows. Forty-nine per cent of Welsh dairy farmers expressed plans to increase production over the next five years. This is down from 52 per cent in The number planning to remain the same has also fallen to 35 per cent, down from 38 per cent in Farms considering declining or exiting dairy farming completely are seven per cent, and nine per cent have no plans for the coming five years. Younger farmers are more likely to be planning growth of their cow numbers or to remain the same, whereas those looking to decrease or exit are older farmers. Very few large farms are looking to exit, with 90 per cent of them wanting to remain the same or even grow further, whereas a third of the smallest farms either plan to decrease, exit or are not sure on their five-year plan. If all intentions are implemented, milk production would rise over the coming five years, with 29 per cent of the increase in milk volume coming from the herd size, eight per cent from farms with over 500 cows and 58 per cent from all herds that are already over 200 cows. Most farmers on aligned milk contracts (63 per cent) plan to increase their herd sizes, although those on balancing milk contracts are very close behind at 61 per cent. Those with solid and liquid milk contracts are less inclined to increase, at 53 per cent and 44 per cent, respectively. The most likely changes to farm performance in the coming five years are to improve herd fertility, with 69 per cent of farmers identifying this as a priority; improving yields is second at 65 per cent. If all farmers reported intentions are carried out, it is estimated that milk production could increase by nine per cent. 4

5 1 Introduction Background to the Welsh Conditional Aid Scheme This report summarises the vast amount of information that was gathered as part of the Conditional Aid Scheme in Wales in early 2017, by paying dairy farmers 1,800 to complete and submit a detailed questionnaire. It requested farm and business information, physical and financial. Over 1,100 responses were received, each with over 250 questions to answer, leading to over 300 lines of data per farm. A third of a million data points have been interpreted to create this report. The deadline for farmer submission of the data was the end of June. The objectives of this report are primarily threefold, to: Provide a snapshot of Welsh dairy farm performance Compare with the previous 2014 Welsh dairy farm survey Provide some baseline indicators of greenhouse gas emissions Other comparisons have also been made, including with the rest of GB dairy farming. Market conditions At the time the survey was taken in early 2017, the milk market was undergoing a revival in fortunes, emerging from a period of low milk prices compared with earlier months. Figure 1.1 shows the price dip that troughed in June 2016 at a nine-year low of 20 pence per litre (ppl). By spring 2017, the average GB ex-farm milk price was nearly 27ppl, a mid-range price on recent historic standards. Chapter 2, which examines the financial situation of dairy farming in Wales, covers the farms whose year-ends fall within the period from December to June for the years 2015 to This is clearly in the period of sharply declining and, for much of the time, low milk prices. In contrast, the 2014 Welsh dairy farming survey was undertaken, as the chart shows, at a time of high milk prices and, therefore, greater profitability in the industry. ppl Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Figure 1.1. GB monthly average farmgate milk price Farmers and responses As of August 2017, according to AHDB, there are 1,723 dairy farms in Wales, the same as for the previous month, and 19 fewer than the previous year. The number of dairy farms, therefore, fell in 2016/7 by 1.1 per cent. In 2014, there were 1,855 dairy farms in Wales and 1,926 in The final number of usable responses was 1,068, giving an impressive 62 per cent response rate of the total dairy farms in Wales. However, one has to wonder why the other 38 per cent did not submit their figures. The quality of the data gathered is far from perfect. It was not checked on delivery and, while it has been cleaned for outliers and unbelievable responses, many figures may have been estimates, recollections from memory rather than sourced from accounts, and so on. At least in part for this reason, some use is made of median average as well as mean average. These are highlighted throughout the report. In this study, as part of the interpretation, we have not commented on extremes (maximum or minimum). This is partly to protect the privacy of those operating at these levels, but also as it greatly diminishes the impact of potentially erroneous entries in the data. Furthermore, extreme and, therefore, potentially curious figures, would be remembered and quoted rather than the substance of the data. This would teach us nothing. Understanding the average and quartile performers in the group has so much more practical use. 5

6 Definitions Averages In this report, two types of averages have been used; mean and median. The mean is the average number in a dataset, found by adding up all the data points and dividing this figure by the number of data points. The median is the middle number in a data set, it is found by ordering all of the data points and finding the one that is in the middle; in a case where there are two middle numbers, the median is calculated by taking the mean of these two values. In charts that average or group data, the range of performance within each category is inevitably considerable. The top performers will dramatically outstrip the average. These have not been shown as, at some extremes, the data might become less reliable and is of less meaning to most people. Block calving This is defined as over 90 per cent of the animals calving within one specific 12-week period. Split block calving will have two distinct periods or blocks (eg spring and autumn), but, where there are more than two blocks, the calving pattern should be classified as all year round. Spring block calving Defined as over 90 per cent of cows in a herd calving between 1 February and 30 April. Autumn block calving Defined as over 90 per cent of cows in a herd calving between 1 August and 31 October. All-year-round (AYR) calving This is defined as a calving pattern that is spread relatively uniformly throughout the year and not targeted towards any particular 12-week period. Calving on these farms is likely to take place for at least 10 months of the year. Days grazing This is defined as the number of days that the milking herd spends grazing, where limited supplementary forage is offered. Where cows only spend a portion of the day grazing, this should be accounted for, eg grazing between morning and evening milking would be 0.5 day s grazing. Milk contracts Milk is purchased for various uses. Liquid milk contracts supply the fresh milk market, solid contracts are for manufacturing, which need milk solids. Balancing contracts are from brokers which provide the fluidity in the market, ensuring all milk processors have sufficient milk, and aligned contracts are those priced according to the farm s costs of production rather than open market value of the ex-farm milk. Ppl Pence per litre. GLU Grazing Livestock Unit. Equivalent to 1 dairy cow. Table 1.1. Categories of animals and their GLU figures Dairy cows 1.00 Beef cows (excl. calf) 0.75 Heifers in-calf (rearing) 0.80 Bulls year-old dairy youngstock year-old dairy youngstock years old and over cattle 0.80* * Reference John Nix Farm Management Pocketbook

7 2. Financial results Introduction This section provides the financial results of the 2017 survey and compares them with the results from the latest dairy report from AHDB Dairy s Evidence Report, GB Dairy Herd performance It also compares results with the Farm Business Survey s (FBS) Dairy Farming in England Only those survey responses that covered year-ends between December to June in and (of which there were 862 usable responses) were used in order to be comparable with the similar time period in the other studies. This was over 80 per cent of the entire dataset. There are some key differences that should be taken into account in the interpretation of the figures. 1. The FBS data are collected by trained data collectors, they are verified on farm and again during the processing of the data. Data professionals visit each farm on multiple occasions to ensure the figures are correct and reconciled with bank positions. With the Welsh Conditional Aid Scheme, farmers completed the forms themselves. Most data is good but some others are either missing or of questionable quality. 2. The questions asked in each survey were slightly different, leading to slightly different answers. 3. The dates of the surveyed farms are not necessarily identical with FBS; the specific dates of the farms surveyed using the Conditional Aid information are not necessarily the same as their business year. 4. FBS data covers the entire farm, which is mainly dairy farming but some farms will have non-dairy enterprises which are included in the figures. The AHDB Evidence report covers the dairy enterprise alone. The Conditional Aid figures are for dairy and dairy youngstock enterprises combined and exclude other enterprises. 5. The Conditional Aid survey data is not reconciled to an exact year s business. For example, there is no evidence that debtors, creditors and valuation changes have been accounted for. Quality of the financial results is also dubious for some respondents (eg no costs, no feed, and so on). For this reason, as a process of data cleansing, the most extreme five datasets at each end of the performance scale (dairy profit per litre) have been excluded. In the absence of resources to validate each farm s submissions, it was decided to remove the most extreme outliers as these figures would have the highest probability of being incorrect data. The formulae used in the data to calculate the profit figures have not been validated by The Andersons Centre. The Farm Business Survey uses farm business income as a key measure of farm profitability. It is the return to the farmer for their time invested in the business. In other words, it excludes any imputed costs of unpaid labour. Note on quartiles In this chapter, the data has been divided into five groups; the first four are non-organic farms, split out according to the performance quartiles by dairy profit in ppl. The fifth column summarises the average of all organic farms. A sixth column appears in some tables which summarises the entire set of data. A top quartile farm might not necessarily be in the top quartile for all measures, for example it could have high costs but also a high milk price. There are clearly several ways of segmenting data into performance groups; the Farm Business Survey, for example, segments farms according to total profit. This means that larger farms are more likely to feature in the top quartile (and bottom quartile if they are loss-making). Physical key data The key physical data in the dataset analysed in this chapter is summarised in Table 2.1 and Table 2.2. It demonstrates that profitability per litre rises as farm size increases (or vice versa) but does not make a direct link between the two. Land area allocated to the dairy (and youngstock) unit also rises accordingly as stocking rates remain relatively uniform (even though milk output per hectare is noticeably higher in the top quartile). Milk yield rises gradually from lower quartile to top quartile farms as does the percentage of milk solids, meaning total milk solids produced per cow are higher for the top producers, but the weight of the cows is not. All these are marginal differences between performance sectors, meaning that the top quartile produces 94 per cent of the cow s body weight in milk solids per year, while the bottom quartile is only managing 74 per cent. This is a measure of cow efficiency. 7

8 Table 2.1. Physical measures on data analysed Mean averages Q1 (top) Q2 Q3 Q4 (bottom) Organic All data Number of farms Mean herd size Dairy area (ha) Milk price (ppl) Milk yield (l/cow/year) 7,578 7,282 7,190 6,046 6,068 7,080 Milk solids (% butterfat & protein) Milk yield (kg milk solids/cow/year) Weight of cows (kg) Milk solids as % weight Milk output (kg/ha/yr) 11,831 11,948 9,826 7,823 6,542 10,385 Table 2.2. Physical measures on data analysed Mean averages Q1 (top) Q2 Q3 Q4 (bottom) Organic All data Number of farms Mean herd size Dairy area (ha) Milk price (ppl) Milk yield (l/cow/year) 6,841 7,303 6,869 5,660 5,982 6,788 Milk solids (% butterfat & protein) Milk yield (kg milk solids/cow/year) Weight of cows (kg) Milk solids as % weight Milk output (kg/ha/yr) 13,427 14,033 11,317 7,872 6,228 11,737 Milk price The average milk price in the survey was 22.7ppl, almost six per cent lower than the 23.87ppl quoted by the FBS for England. The milk price rises through the quartiles. Table 2.3. Table showing milk contract types per quartile (%) Milk contract type Q1 Q2 Q3 Q4 Organic All data Aligned Liquid Solid Balancing Other Total* *Figures quoted in the table may not total exactly 100% due to rounding 8

9 Table 2.3 shows there are more of the higher valued aligned milk purchase agreements in the top quartile performance bracket, but each quartile does have some of these agreements. The average price for milk on aligned contracts was 26ppl. However, the three or six extra aligned contracts in the top quartile than the other quartiles, when averaged with the other farms (there are about 100 farms per quartile), changes the milk price in each quartile by less than 0.3ppl. The other price differences are for other reasons. These might include delivery frequency and volume. In data, the proportion of farms with a liquid-based contract has reduced by eight percentage points compared with In contrast, the number of farms on solids-based milk contracts had noticeably increased by a similar amount. Table 2.4. Table showing milk contract types per quartile (%) Milk contract type Q1 Q2 Q3 Q4 Organic All data Aligned Liquid Solid Balancing Other Total Examination of the milk hygiene figures as summarised in Table 2.5 show that the best performing farmers financially also have the best milk hygiene ratings. Table 2.5. Milk hygiene summary by dairy profitability quartile (mean averages) 000 Q1 Q2 Q3 Q4 Organic All data Bactoscan Somatic cell count Table 2.6. Milk hygiene summary by dairy profitability quartile (mean averages) 000 Q1 Q2 Q3 Q4 Organic All data Bactoscan Somatic cell count Milk price penalties are applied as both the bactoscan and somatic cell count figures rise. Without a detailed examination of the contract requirements and individual bactoscan and somatic cell count readings, it is difficult to tell how much this is affecting milk prices. Output In , the average milk yield for the total population was 7,080 litres per cow per year, lower than the 7,900 recorded by AHDB (quoted in FBS). The average net dairy output in was 24.6ppl, or 247,000 per farm. The quartile differences highlight a greater output for the top quartiles, rising from 133,000 to 327,000 per farm or 21.8 to 26.2 pence per litre. The FBS return for this period was 291 per hectare. 100% 90% 80% 70% 60% 50% Number of cows > In those recording their data, the average milk yield was 6,788 litres per cow per year. The average net dairy output was 25.5ppl, or 357,000 per farm. Figure 2.1 shows how herd size contributes to total Welsh milk production. A third of farms are fewer than 100 cows in herd size and are contributing 10 per cent of the milk production while, at the larger end, fewer than two per cent of herds are producing 13 per cent of the milk production. 40% 30% 20% 10% 0% Proportion of herds Proportion of milk production Figure 2.1. Milk production by herd size 9

10 Costs The average litre of milk produced and sold in the period cost 30 pence to produce. For , this was nearly 28ppl. This is higher than the income earned for the milk (excluding subsidy income). Variable and replacement costs account for 48 per cent of the costs, with overheads accounting for 52 per cent. This is divided into quartiles and demonstrated in Figure 2.2. It also shows that the difference in the cost of production between the low cost and high cost producers is largely in the overhead costs. 25 Milk production costs (ppl) Q1 Q2 Q3 Q4 Organic Variable & replacement costs Total overhead costs Figure 2.2. Variable and overhead cost spend per litre by quartile Milk production costs (ppl) Q1 Q2 Q3 Q4 Organic Variable & replacement costs Total overhead costs Figure 2.3. Variable and overhead cost spend per litre by quartile

11 Variable costs The variable costs are those that differ directly according to the number of units of key input (cows, in the case of a dairy farm). As the herd size increases, so costs such as feed and veterinary bills increase. Figure 2.4 demonstrates that they also vary according to performance of farm. Forage costs Purchased feed Direct dairy costs Milk production costs (ppl) Q1 Q2 Q3 Q4 Figure 2.4. Variable costs by profitability quartile Forage costs Purchased feed Direct dairy costs Milk production costs (ppl) Q1 Q2 Q3 Q4 Figure 2.5. Variable costs by profitability quartile It is widely acknowledged that the lowest cost method of feeding cows is grazed grass, and then conserved forage in the months when grazing is not possible. This is demonstrated here, with purchased feed costs outstripping forage costs about 3:1. The highest direct cost for all groups, as can be seen, is the purchased feed costs, but the least profitable farmers spend more than others on this category. Figures 2.6 and 2.7 detail how this is spent between concentrates and all other feeds. The concentrate cost is higher than all other purchased feeds combined. 11

12 All other purchased feed Dairy cake Purchased feed costs (ppl) Q1 Q2 Q3 Q4 Figure 2.6. Detail of feed cost by profitability quartile All other purchased feed Dairy cake Purchased feed costs (ppl) Q1 Q2 Q3 Q4 Figure 2.7. Detail of feed cost by profitability quartile Other direct dairy costs, such as veterinary costs, breeding, foot care, bedding, and dairy chemicals are far better controlled by the top performing herds, spending around 1.0ppl less than the highest spending category. A breakdown of the direct dairy costs, as shown in Figure 2.8, reveals two interesting points. Firstly, the veterinarian and medicine costs stand out as considerably more expensive with poorer farms. Secondly, most other costs are similar, irrespective of farm performance, although there is a little more variation in the results. 12

13 Other sundries Footcare Semen & recording Bedding Vet & medicines Milk production costs (ppl) Q1 Q2 Q3 Q4 Figure 2.8. Detail of direct dairy cost analysis Other sundries Footcare Semen & recording Bedding Vet & medicines Milk production costs (ppl) Q1 Q2 Q3 Q4 Figure 2.9. Detail of direct dairy cost analysis

14 Overhead costs Overhead costs account for a greater disparity between the top quartile and bottom quartile farms, as already demonstrated. Figure 2.10 explores this in more detail. It can be seen that the top quartile farms (yellow bars), incur lower costs than the lower quartile farmers (blue bars). The spread of cost variation is greatest in the unpaid labour and machinery costs, as shown. Indeed, there is no significant difference in paid labour between the top and bottom quartile producers. Unpaid labour is where some farmers might not recognise the value of their own time (or value their time differently). Because of their lifestyle choices, they are arguably happier to spend high or, in some cases, excessive (uneconomic) amounts of time working on the farm. Whatever the case, spending over four times more than others is extreme. Paid labour Unpaid labour Power & machinery costs Machinery & property depreciation Property repairs, rent & finance Of which: rent Other operational costs Q1 Q2 Q3 Q4 Milk production costs (ppl) Figure Overhead costs by milk profitability quartile Paid labour Unpaid labour Power & machinery costs Machinery & property depreciation Property repairs, rent & finance Of which: rent Other operational costs Milk production costs (ppl) Q1 Q2 Q3 Q4 Figure Overhead costs by milk profitability quartile

15 Machinery costs are also higher on the lower quartile farms as shown, although not by such a large amount. There is a significant variation between dairy farmers personal choices and also farming systems regarding their requirement for machines such as telescopic handlers, mixer wagons and other such machines. Also, different farms have varying attitudes between machinery ownership and contracted services. Profitability The difference on a pence per litre (ppl) basis of output between the top and the worst performing quartiles was 4.3ppl in In , this was half that at 2.1ppl difference. Clearly, over an average milk production of about a million litres, this equates to between 21,000 and 43,000 per year; a sizeable sum. Overall, the profitability difference between the average performer of the top quartile and the bottom quartile was 20ppl in and nearly 17ppl in , equivalent to around 125,000 when milk quantity is accounted for. Profitability and calving pattern This chapter has demonstrated that the costs per litre of milk sold account for a far greater proportion of the variation in profit than the income. Table 2.7 demonstrates that the more profitable groups tend to have a greater proportion of block-calving herds, with 12 per cent in the top quartile compared with four per cent in the lowest quartile. This is not a clear correlation though, as the third quartile demonstrates a similar population to the top quartile. Block-calving facilitates lower costs of production but, historically, all-yearround herds have supplied liquid milk contracts which have had higher rates of payment to reflect that higher cost of 12-month continuous supply and penalties to penalise block calvers. With lower milk prices in , the block-calving herds have outperformed all-year-round herds for the top quartile. There is also a greater proportion of block-calving herds that provided data. It cannot be ascertained whether this is a trend or a quirk of the data. Table 2.7. Financial performance groups and calving patterns Q1 Q2 Q3 Q4 Organic All data % AYR % block Table 2.8. Financial performance groups and calving patterns Q1 Q2 Q3 Q4 Organic All data % AYR % block The scatter graph on Figure 2.12 identifies the returns to the dairy and youngstock enterprise (before subsidy) on the vertical axis. It shows the range of milk prices being received; clearly a very large range. The farms are then differentiated between all-year-round calving herds (shown as blue dots) and all block-calving herds (shown as orange dots). While the block-calving herds tend to cluster in the upper region of the chart (more profitable), there are two that are near the bottom; if the system is not managed well, it can be as costly as any other Dairy profit (ppl) Milk price (ppl) All-year-round Block Figure Dairy profit and milk price, separated by calving pattern

16 Key financial results Table 2.9 shows the key financial results of the sample of farm year-end results on a ppl basis. The Basic Payment Scheme and agri-environmental income have been added below the net dairy profit (at the same proportion as the land area attributed to the dairy enterprise (including youngstock). Table 2.9. Key financial results of the dataset per litre milk sold (ppl) Mean averages Q1 Q2 Q3 Q4 Organic All data Dairy output Milk sales Calf sales Cull sales Gross dairy output Net dairy output Herd replacement cost Direct dairy costs Feed costs Forage costs Total variable costs Overhead costs Paid and unpaid labour Paid Unpaid Power & machinery costs Machinery & property depreciation Machinery depreciation Property depreciation Property repairs, rent & finance Rent Finance Other operational costs % to dairy Total overhead costs Total dairy costs Net dairy profit before BPS Output retained % BPS Agri-environmental subsidy

17 Table Key financial results of the dataset per litre milk sold Mean averages Q1 Q2 Q3 Q4 Organic All data Dairy output Milk sales Calf sales Cull sales Gross dairy output Net dairy output Herd replacement cost Direct dairy costs Feed costs Forage costs Total variable costs Overhead costs Paid and unpaid labour Paid Unpaid Power & machinery costs Machinery & property depreciation Machinery sepreciation Property depreciation Property repairs, rent & finance Rent Finance Other operational costs % to dairy Total overhead costs Total dairy costs Net dairy profit before BPS Output retained % BPS Agri-environmental subsidy The figures highlight a concerning level of costs in the bottom quartile at nearly 38ppl including replacement costs. The sale price of non-organic milk has never reached that level and may not for many years. Even when the unpaid labour is removed from this, the cost of production is still alarming at 31ppl. The net dairy profit is negative for the three lower quartiles and also on average overall. The top quartile and organic sector are both making a positive net dairy profit in the trading conditions but making a negative profit in The range from top quartile to bottom quartile is almost 20ppl for and 17ppl in Table 2.11 demonstrates that some of the key financial measurables vary considerably more with the Welsh dataset than the GB report. It is not clear whether this is simply because Welsh dairy farming is inherently more variable than GB dairying (for example with a higher proportion of aligned contracts in England), or whether the data have been entered differently. 17

18 Table Key differences with GB evidence report data (ppl) AHDB GB Evidence Report Welsh Conditional Aid Difference Gap between top and bottom 25% cash costs of production Cash net margin top 25% Cash net margin bottom 25% Range in revenue* *Net dairy output Comparison with 2017 GB Evidence Report Data Table 2.12 below shows a comparison between the figures representing the dairy farming performance in Great Britain taken from the AHDB Evidence Report, compared with the Welsh Conditional Aid results of this study. There is a noticeable difference in the size of the gap between the top and bottom 25 per cent cash costs of production in the Welsh results compared to the Evidence Report. Table Comparison of Welsh Conditional Aid and GB Evidence Report Data (all costs and outputs in ppl) Top 25% Bottom 25% Mean averages AHDB Evidence Report Welsh Conditional Aid AHDB Evidence Report Welsh Conditional Aid Number of farms Mean herd size Milk yield (l/cow/year) 8,041 7,578 7,305 6,046 Milk solids (% butterfat & protein) Milk yield (kg milk solids/cow/ year) Dairy output Milk sales Gross dairy output Herd replacement cost Net dairy output Direct dairy costs Feed & forage costs Total variable costs Fixed costs Paid labour Power & machinery costs Property repairs, rent & finance Rent Other operational costs Total cash fixed costs Total cash costs of production Cash net margin

19 Bear in mind the AHDB GB Evidence report is solely concerning the dairy enterprise, whereas the Welsh Conditional Aid data is for the Dairy and youngstock enterprises combined, and that the Evidence report data was collected by trained data professionals, whereas the Conditional Aid data has had no verification process. Organic farming Using the figures submitted in the Conditional Aid Scheme and the subsequent data analysis, the profitability of organic farming in was substantially greater than that of non-organic dairy farming systems overall. The average organic net dairy profit returned a respectable 2.1ppl compared with 1.6ppl with the top quartile non-organic sector. Organic dairy farms milk yield per cow is no lower than for many non-organic herds, averaging over 6,000 litres. However, the milk output per hectare (measured as kg/ha/year) was lower than any nonorganic quartile. The farm size was larger than any other quartile at 129ha, with, on average, fewer cows per herd at 136 cows. Milk price was considerably higher at 31.5ppl rather than 22.7ppl. Organic farms manage to sell their calves for more money, making almost 12,500 per farm compared with about 10,000 on non-organic farms (interestingly, there is some evidence the top quartiles outperform the lower quartiles here, too). Total gross output per litre sold was 34.7ppl for organic farms but only 25.5ppl for non-organic. This difference is compounded by a lower variable cost expenditure for organic farms, saving 0.8ppl. Overheads are higher than average per litre of milk, with the largest costs in power and machinery (5.7ppl) and property, rent and finance (3.7ppl) Dairy profit (ppl) Non-organic Organic Milk price (ppl) Figure Dairy profit and milk price, separated by system Figure 2.13 shows the scatter of farm financial performances, again plotted against milk price (horizontal axis) and dairy profit (vertical axis). The organic farms are highlighted as orange. It is clearly visible that milk price is considerably higher and profits are generally better, too. 19

20 Figure 2.14 shows a similar analysis but separated by herd size category Dairy profit (ppl) Milk price (ppl) > 500 Figure Milk price and dairy profit combined with herd size 20

21 3. Farm structure This section provides the results of the survey and, where possible, includes a comparison to the 2014 survey of Welsh Dairy Farming. The chapter includes the entire usable dataset provided. Farm area and area used for the dairy enterprise The average farm size of the respondents is 132 hectares, 108 of which are dedicated to the dairy and dairy youngstock enterprises. The smallest 25 per cent of farms have an average size of 62 hectares devoted to their dairy enterprise. The largest quartile of farms has an average dairy area of 136 hectares. Table 3.1. Farm area and dairy area Hectares Total farm Dairy farm area Lower quartile Median Upper quartile Mean average Slightly over half the respondents are specialist dairy farmers, defined as 100 per cent of their holding being dedicated to dairy farming (and youngstock). This is unchanged from Those farms that do not completely specialise in dairying are still predominantly dairy businesses two-thirds of farms reported that over 90 per cent of their land is used in the dairy farm (suggesting only 10 per cent of land is used for other enterprises). Furthermore, over 90 per cent of all farmers responding dedicate at least half of their land area to dairying. Over half of all respondents have some other grazing livestock animals (57 per cent). However, the dairy and youngstock accounted for a mean of 87 per cent of Grazing Livestock Units (GLU) with the median at 98 per cent. Again, it can be seen from these figures that dairying is the predominant activity on the farms surveyed. Half the farms (52 per cent) had a beef enterprise; this is a slight rise on the 2014 figure (50 per cent). Most beef enterprises were beef finishers or stores. Only 13 per cent kept suckler cows (albeit up from 10 per cent in 2014). A smaller proportion (23 per cent) had sheep on the farm, almost all of which (22 per cent) were breeding ewes. The prevalence of sheep on dairy farms has fallen since 2014 when 27 per cent of respondents stated they had such an enterprise. This not a surprise as they conflict with cow-grazing demands at key times of the year. Only seven per cent of respondents did not have any dairy youngstock on the farm indicating most businesses are rearing their own replacements. Stocking rate and farm size Stocking rate (GLU/ha) > 400 Dairy land (ha) Figure 3.1. Stocking rate as farm area increases Figure 3.1 plots the farm size on the axis and the stocking rate (expressed in grazing livestock units (GLU) per hectare) on the vertical axis. It can be seen there is no discernible correlation between the area devoted to the dairy enterprise and the stocking rate. It might be thought that the stocking rate would rise on smaller units as the land was used more intensively to make greater use of the scarcer resource. This does not occur though, with the stocking rate broadly similar across farms of all sizes with most enterprises having stocking in the range 1.6 to 1.9 GLU per hectare. Farms with higher stocking rates tend to find it easier to grow better grass no matter what the business size. 21

22 Grass (%) > 400 Dairy land (ha) Figure 3.2. Correlation of farm size and percentage of forage area in grass Over 90 per cent of forage area for the dairy industry in Wales is grass. Figure 3.2 demonstrates that, as the farm becomes larger, the proportion grown to grass decreases, with other crops, including maize featuring more in the rotation. This is not a strong correlation, but appears to become stronger as the farm size increases up to a maximum of 400 cows. In the 2014 survey, 60 per cent of respondents grew only grass. In 2017, the figure was 61 per cent. It, therefore, seems there has been almost no change towards alternative forage sources. Interestingly, over three-quarters of respondents grow over 90 per cent of their land as grass. The 2014 survey found that 19.5 per cent of respondents grew wholecrop and 14 per cent grew maize. The corresponding figures for 2017 were 20 per cent and 15 per cent, again indicating little change in rotation, despite Greening regulations being applied between the two dates. Many of these farms are solely grass farms thereby negating any Ecological Focus Area obligations. Cropping and grass areas including categorisation by herd size The middle 50 per cent of farmers stock their dairy units at between 1.9 and 1.2 Grazing Livestock Unit (GLU) per hectare with the median farm having 1.5GLU/ha. 3.5 Stocking rate (GLU/ha) > 500 Figure 3.3. Stocking rate as cow number rises (GLU/ha) Herd size (cows) Figure 3.3 shows a correlation between stocking rate and cow numbers. Larger herds of more than 250 cows often feature stocking rates upwards of 2.0GLU/ha rising towards 3.0GLU/ha in intensive cases. Those with fewer than 150 cows almost exclusively have a stocking rate of below 2.0GLU/ha, falling to under 1.50GLU/ha for those with less than 50 cows. This links to Figure 3.1. As farms become larger in area, they don t necessarily stock cows at different rates but, as farms become larger in terms of cow numbers, sometimes this is achieved by fitting more into the same space. Larger herds also have a greater variation in stocking rate. This may be due to more pronounced divergence in dairy systems at larger scales especially between grass-based seasonal calving herds and high-output year-round calving herds which are mainly housed. 22

23 Herd sizes of respondents Herd size ranged from very few cows to in excess of a thousand milking cows. The middle 50 per cent of herd sizes ranged from 100 to 257 with the median herd carrying 155 cows. The mean average is swayed upwards by the very large outliers, giving a mean herd size of 169 cows. Table 3.2 opposite shows how herd sizes have evolved since the 2014 Welsh Dairy Farmers Survey. There has been a trend towards larger herds. Table 3.2. Herd size comparison % of respondents Herd size > 500 cows 2 3 In terms of type of work done, as the dairy herd grows in size per number of proprietors in the business, the less physical farming the proprietor will undertake, the more management he or she will do. Those with the highest number of cows per proprietor would probably do almost no physical farming, whereas the smallest farms would have no paid help at all. Business structure Of the dairy businesses in Wales, 76 per cent are partnerships, 15 per cent are limited companies and seven per cent are operated as sole trading businesses. The two per cent unaccounted for in the preceding figures are a combination of college farms and joint ventures. Since 2014, the percentage of partnerships has fallen by two per cent, but this is not significant considering the slightly different survey dataset. However, the proportion of limited companies has risen substantially from nine per cent. Sole trader numbers have nearly halved from 13 per cent to seven per cent. The small number of joint ventures at less than one per cent is barely significant, but did not feature at all three years ago, showing a potential emerging trend of such arrangements in dairying. Figure 3.4 breaks the overall data down into different categories of herd size. A clear trend emerges that the corporate business structure of a limited company becomes more favoured where businesses are larger (ie greater herd sizes). In contrast, the sole trader structure is most often seen in smaller herds. Perhaps interestingly, the joint venture arrangements seem to appear within a particular size range. This may be a size that is large enough to justify the setting-up of an arrangement but not too large that it exposes the parties to too much risk and requires high levels of capital. > 500 Herd size (cows) % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sole trader Partnership Joint venture Limited company Other Figure 3.4. Business structure by herd size 23

24 Number of proprietors The survey gathered information on how many people were involved in the business (ie director, partner, joint venture members). The scope of people involved ranged from one (sole trader) up to double figures. Figure 3.5 demonstrates the majority is two or three, between them accounting for almost three-quarters of the farms. 6 or over 5 Number of people % 5% 10% 15% 20% 25% 30% 35% 40% 45% Figure 3.5. Number of people within the business Proprietors age Many surveys ask the age of the business principal or head of the holding. It is widely acknowledged that this tends to overestimate the average age of the respondents, as the oldest person in the business often takes on the role of its head (irrespective of their actual input into management decisions). This survey gathered the ages of all those involved within the business (excluding paid labour). For the sake of brevity, these will be referred to as proprietors from here on, and include partners, directors of a limited company and individual sole traders. Figure 3.6 demonstrates that the largest number of proprietors in the business are 60 years old or over, with the next most numerous group in their fifties. 60 and over Proprietors' age and under 0% 5% 10% 15% 20% 25% 30% 35% 40% Figure 3.6. Number of proprietors in each age group The data gathered on the ages of proprietors is not comparable to the 2014 survey, which only asked for information on the head of holding, whereas in 2017 all those involved in the business were included. Not surprisingly, given this change, there has been a shift to a younger age profile. Whether this really points to a greater degree of generational renewal in the Welsh dairy industry is not possible to say. It is possible to take the average age of the proprietors within a business and plot these against herd size. This is done in Figure 3.7. It is clear that, as herd size increases, so the average age of the proprietors goes down. The average age of the very large dairy farms is 51 years, whereas the average age of farmers operating very small herds (10 49 cows) is almost 60 years, with a very clear gradient in between. This suggests that, either a farmer is likely to keep fewer cows throughout their life, or, more likely, as older farmers retire from farming, leaving younger generations to carry the farm on, the overall average herd size is likely to continue rising. 24

25 Herd size (cows) > Figure 3.7. Average proprietor s age by herd size Average age of partner Looking at overall average age of proprietor on a per farm basis, the age is 54 years. This changes little when looked at from a per cow and per litre basis, at 53 years of age. Land occupancy structure Owner-occupation is the predominant form of land occupation within the Welsh dairy sector. As Table 3.3 indicates, 49 per cent of farms are wholly owned by their proprietors. A further 39 per cent have a mix of owned and tenanted land. Only 11 per cent are tenant-only farms. The mixed ownership farms will span a vast range, however. At one extreme might be a largely tenanted business that has purchased a small number of additional fields, while, at the other end of the extreme, there could be a predominantly owned farm that has a small area on a short-term tenancy. There has been little overall movement in farm structures since the last survey. Table 3.3. Ownership structure Land ownership % of respondents Fully owner-occupied Part owned/part tenanted Fully tenanted Contract/joint venture 0 1 > Herd size (cows) % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Owner Owner/tenant Tenant Share farmer Contract farmer Figure 3.8. Land occupancy and herd size relationship Owner-occupation is important in every size category without rents to pay, their cash flow is more sustainable. However, as herd size increases, farms are more likely to take on a proportion of rented land to grow more feed. Figure 3.8 shows the split of land occupation for different herd sizes. Over 50 per cent of farms of fewer than 150 cows are fully owned, compared to less than 40 per cent of those with 300 or more cows. Over 50 per cent of farmers with more than 500 cows now farm a combination of owned and rented land compared to 43 per cent in

26 The proportion of owner occupation among the smallest farms of cows has fallen by eight per cent since 2014, suggesting these businesses are leaving the industry or expanding by renting land. Fully tenanted farms form between eight per cent and 15 per cent of the total, excepting the largest farms of more than 500 cows where none is fully tenanted. Joint venture agreements (sometimes incorrectly referred to as share farming agreements) appear only in the larger herds of more than 300 cows, as do contract farming agreements but these are not as popular. Total labour units The survey asked respondents about total labour use on their holdings. This was in terms of labour units (ie the number of full-time equivalents (FTE)). This included both employed labour and that provided by the proprietors and their families. The latter might be paid or unpaid. In 2014, the average number of people working on each farm was 2.8. Of these, 2.3 were paid and the rest unpaid. This had risen sharply to 3.45 full-time equivalent workers per farm by It is possible that a slightly different question was asked or it was worded differently. About 64 per cent of labour came from the farming family with 1.8 out of the total 2.8 workers being family members in In 2017, this figure was 60 per cent. This suggests a rise in the non-family workforce. Part-time workers on average work 57 per cent of the hours of full-time workers. Figure 3.4. Summary of workers Number of workers per average farm Unpaid family Paid family Non-family Total Full time (FT) Part time (FTE) Total The questions asked in 2017 were not identical to those in There may have been some interpretation discrepancies between the two surveys. By taking this labour usage data, implying an average cost per farm as 68,300 (and at 19,802 per full-time equivalent person which is the average full-time wage in the data) and dividing by the number of cows on average, it is possible to arrive at an average labour cost per cow. This is shown, for various herd sizes, in Figure per cow (all labour) > 500 Herd size (cows) Unpaid family Paid family Non-family Figure 3.9. Labour cost (per cow) It can be seen how the largest herds incur dramatically lower labour costs per animal than the smallest. A farmer milking between 50 and 99 cows will have costs nearly three-and-a-half times more for labour than a farmer with more than 500 cows. In many cases, especially for smaller farms, this cost will not be a cash cost for employed labour. Instead, it will be the opportunity cost of a family member working on the farm when they could gain employment elsewhere. In such cases, the high cost of labour is effectively hidden. It is also known as the opportunity cost of the labour. In key charts like this, it is worth remembering that the range of performance within each category is also considerable so the best performers will have substantially less labour cost per cow than this. Figure 3.10 also explains how the labour cost falls as herd size rises, as the number of cows per worker also increases. 26

27 Cows per worker (FTE) > 500 Herd size (cows) Figure Cows per person (full time equivalent) Farm system (conventional or organic) Slightly over six per cent of the usable responses recorded themselves as organic. This is higher than the equivalent 2014 figure (five per cent). The average herd size of the organic farms was 142 cows compared with 169 for conventional herds. Of those that are organic, 100 per cent plan to remain so. This is perhaps indicative of the current good prospects in the organic sector in 2014, five per cent of organic herds were planning to switch from organic production. This is reinforced by 1.4 per cent conventional herds currently thinking of changing to organic; in 2014, none were considering such a move. Table 3.5 below compares some key indicators for both organic and conventional dairy businesses. Not surprisingly, the milk price being achieved by organic farmers during the period of the survey was considerably (almost 60 per cent) greater than the conventional prices. The gap has since narrowed with the general rise in all milk prices, but the organic premium remains robust. Table 3.5. Comparison of conventional and organic herds Organic Conventional Farmers (%) 6 94 Milk Price (ppl) L/cow 5,894 6,892 Value of milk per cow ( ) 2,099 1,504 Herd size BPS ( ) 22,742 21,828 Agri-environmental ( ) 8,730 1,409 % owner occupied Milk yields for organic producers are, as would be expected, lower than for conventional. However, at 14 per cent lower, there is less difference than might be expected a figure of per cent is often quoted. The profitability of organic milk production is higher than that for conventional when adjusted for the different farm sizes. Some of this shortfall is made up from higher agri-environmental payments likely to be mainly Glastir Organic. 27

28 Table 3.6. Comparison of conventional and organic production systems Conventional % Organic % Overall average % All-year-round Autumn block Unspecified block Spring block Total* *Figures quoted in the table may not total exactly 100% due to rounding The differences in production systems between organic and conventional farms are not very marked, Table 3.6. In both sectors, all-year-round systems are by far the most popular. Autumn block calving (calving all the cows in the autumn) is more favoured by organic producers at the expense of spring calving. Conventional Organic 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Profit from dairy Basic Payment Scheme Agri-environmental subsidy Figure Division of profits for organic and conventional farming Figure 3.11 splits out the profit for conventional and organic dairy farmers based on three profit centres. It can be seen that organic producers in the period concerned earned half as much from their dairying activity. However, with greater profits from support especially agri-environmental support, total organic income at 38,272 was only 5,251 lower than for conventional farmers at 43,523. It should also be remembered that this is from a smaller average farm size. It illustrates how important support under Glastir Organic is to the organic sector in Wales Dairy income ( per cow) Profit from dairy Basic Payment Scheme Agri-environmental subsidy Organic Conventional Figure Income per cow 28

29 Organic farmers are more likely (difference of eight per cent) to be owner-occupied than conventional farms. It is difficult to draw firm conclusions from this relatively minor difference, but having the security of owning their own farm may make a producer more likely to take the risk of converting to organic. Also, if the land belongs to them, some farmers may be more inclined to farm in a way that is seen as sustainable and protective of the environment. Figure 3.13 below illustrates the fundamental economics of any organic system versus conventional. A lower yield is more than compensated by a higher price, giving higher overall output per cow. 7,000 2,500 Milk production per cow (l) 6,800 6,600 6,400 6,200 6,000 5,800 5,600 2,000 1,500 1, Value of milk per cow ( ) 5,400 Organic Conventional 0 l/cow Value of milk per cow Figure Production litres and value of milk per cow Other farm enterprises The survey data can be used to look at other differences between dairy enterprises of different sizes. Figure 3.14 shows that larger dairy farms are more specialised than smaller ones, having fewer alternative livestock enterprises on the farm. Those farms with fewer than 100 cows often have a sizeable secondary livestock enterprise equating to between 45 and 70 per cent of the size of the main dairy enterprise. 80 Livestock units as a % of dairy > 500 Herd size (cows) Figure Other grazing livestock enterprises as a percentage of dairy GLU As well as additional farming enterprises, dairy farms will also have non-farming sources of income. This includes subsidy income from the Basic Payment Scheme (BPS) and agri-environmental payments (mainly through Glastir) and it would include all other income from diversification activities. 29

30 In Figure 3.15, other farming income refers to other income generated through active farming but not dairy farming. This could be beef, sheep and/or arable farming, for example. Other income refers to non-farming income. This could be diversified activities outside agriculture such as building rentals, shoot incomes, holiday lets and so on. Figure 3.15 shows that medium-sized farms with cows have the highest income from other sources, close to 20,000, suggesting many farms of this size benefit from the income of one person working away from the farm. These farms also earn nearly 40,000 from other farming activities, while farms of earn close to 50,000 from other farming activities, suggesting many are large farms but are not as specialised as those with over 500 cows; they may have an income source from other livestock enterprises or contracting work. per farm 60,000 50,000 40,000 30,000 20,000 10, > 500 Herd size (cows) Other farming income Subsidy income Other income Figure Other farm incomes on top of dairy revenues per farm 30

31 4. Milk production results comparison with 2014 This section focuses on milk production and systems in the Welsh dairy industry. As in the previous chapter, results from the 2017 survey are compared with those from 2014, where possible, and general comments on the findings are provided. Calving pattern The survey found that 81 per cent adopted an all-year-round calving system. This is higher than the equivalent figure in This is perhaps surprising, given the perceived shift to block-calving patterns in GB dairying. It is likely to illustrate that many dairy producers still default to year-round calving for reasons such as adhering to milk contracts, or a slippage in calving patterns. It must also be noted the differing sample between 2014 and 2017, which can make comparisons difficult. It is possibly surprising to note that the block-calving herds appear to be decreasing, because, while they tend to require more management discipline, they also, when well run, appear to be more profitable, as discussed in the last chapter. Table 4.1. Calving system Calving system % of respondents All-year-round 81 Spring block 8 Unspecified block* 4 Autumn block 6 *Assumed to be mainly a mix of spring/autumn blocks also known as a split block The proportion of farms that have fully housed cows, 365 days of the year has been rising. In 2014, this was 4.5 per cent, whereas in 2017 it had risen to 5.1 per cent. This is a small but significant change. The dominance of all-year-round calving herds is surprising when examining the relatively higher profitability of block-calving herds, as demonstrated in Chapter 2. A recent paper from AHDB Dairy (see dairy.ahdb.org.uk/optimal-dairy-farm-systems) calls into question whether all-year-round calving is the optimal system for as many producers as currently practise it. This study corroborates that finding. Grazing period As illustrated in Figure 4.1, around two-thirds of Welsh dairy farms graze for more than six months but less than nine months. This is very much in line with traditional patterns of spring, summer and early autumn grazing, with cows housed during the wettest and coldest winter months. The 2014 survey did not specifically ask about grazing period. However, at that time, 4.5 per cent of herds were stated as being housed all year round. This percentage has increased to 5.1 per cent in Despite being widely discussed in some sections of the media, there is no evidence of a wide-scale move towards highly intensive production systems in Welsh dairying. It can be seen that the proportion of cows housed year-round is larger than the proportion of farms with this system. This shows these types of farms tend to have larger herd sizes than average. Grazing period (months) > Housed all year Farms and cows (%) Cows Farms Figure 4.1. Grazing days on Welsh dairy farms 31

32 At the other end of the scale, seven per cent of herds graze for more than nine months. Again, the proportion of cows in this category is greater than the proportion of herds (12 per cent); so these systems also have large herd sizes. Although the evidence is not conclusive, it seems likely that the larger businesses have consciously chosen either a system based on extended grazing or one with high-input characteristics. Figure 4.2 shows grazing length and the profit made by dairy farms. This is split into the top and bottom quartiles and the median level of profit. A number of conclusions can be drawn from this analysis. Firstly, those using extended grazing patterns (over 274 days grazing per year) make greater returns than the other systems. It is not clear whether this is wholly down to the system being operated, or whether there is a greater management focus when a clearly defined system is being operated. This is because the fully housed system with no grazing days at all but, again, a clearly defined system, demonstrates the second highest profitability. In the middle ground, the profits of the top performers are less well defined but the losses of the poorer performers are considerable. 4 Housed all year > Dairy profit per year (ppl) Grazing period (months) Top 25% Average Bottom 25% Figure 4.2. Dairy profit by grazing length The differences in profitability between systems is partially explained by Figure 4.3. This shows average feed costs for the different grazing categories of farm. It demonstrates that feed costs per cow fall as the grazing period becomes longer. This is unsurprising as it is widely acknowledged that grazed grass is the cheapest way to feed dairy cows. Purchased feed, either concentrates, straights or by-products, has higher costs. Even where grass is fed in the form of conserved forage, the cost of making and feeding silage renders it more expensive. The chart demonstrates that the same is true regardless of cost per litre of milk or cost per cow in the herd. per cow 1, Housed all year > 9 Grazing period (months) Figure 4.3. Average feed cost per cow by grazing period 32

33 Milking frequency, including by herd size Table 4.2 shows that the longstanding norm of twice-a-day milk still predominates in Welsh dairying with well over 90 per cent using this system. The 2014 survey did not collect this information, so it is not possible to see if any of the other types of milking regime have gained ground. Table 4.2. Milking frequency statistics Percent of dairy cows (%) Average milk yield Average milk solids (%) Feed cost per cow ( ) Mean dairy profit (ppl) 1 x a day milking 0.5 3, x a day milking 94 6, x a day milking 2.7 9, Robotic milking 2.1 8, Total or average* , *Figures quoted in the table may not total exactly 100% due to rounding Fewer than one per cent of herds adopt a once-a-day policy. This is associated with low milk yields but very high milk solids. However, it can also be seen that feed costs are low and profits are, consequently, better (or losses lower). With a relatively small sample size, it is difficult to draw firm conclusions, but it can be argued that not enough consideration is given to this low-intensity option when dairy farmers are thinking about approaches to milk production. The focus may well be too much on maximising revenue rather than maximising profitability. If labour shortages become an increasing problem in future years, this might provide a useful solution. Those herds undertaking three-times-a-day milking have higher yields but higher feed costs. This generally translates into a lower level of profitability. The same is true to a certain extent with those operating robotic milking systems as the support costs and overheads are very high. The context of the dairy sector at the time the survey was carried out needs to be borne in mind. It was a period of low milk prices but relatively high feed costs. With the ratio of milk price to feed costs unfavourable, those pursuing higher output were likely to be making lower profits. While this policy might not be optimal in the short term, conditions in milk markets can alter. Also, it takes a period of years to alter production systems, with conversion costs in the interim. The snapshot taken by this survey might not be replicated under different market conditions. In other circumstances, higher milk output systems might be more profitable. Within the consideration of the milking system used, it is not just financial issues that need to be considered. Both once-a-day and robotic systems are supposed to free up more of owners and staff time to undertake other tasks generating further (non-farm) incomes. This appears to be more successful with once-a-day milking. This might lead to a better work-life balance. With three-times-a-day, the additional milking is likely to be undertaken by additional (part-time) labour. Although this would not necessarily add to the proprietors direct labour input, there is likely to be a greater management requirement in running the business. Milk production level, including by herd size Figure 4.4 shows various different categories of herd size, the number of farms within each category and the average milk yield per cow that each category exhibits. There is a relatively low number of very small herds (under 50 cows). Given the large amount of restructuring and consolidation in the Welsh dairy sector over the last few years, it is surprising that herds within the relatively small herd size band of 50 to 99 cows are still the most prevalent (28 per cent of the herds). Another sizeable proportion (24 per cent) of Welsh herds are in the 100 to 149 cow category. This could correspond to the minimum efficient scale under a full-time family farming operation. There are relatively few very large herds with over 500 cows (three per cent of herds). But these will be responsible for a disproportionate share of the output of the Welsh dairy sector as a consequence of their scale. 33

34 8, Milk yield (l) 7,000 6,000 5,000 4,000 3,000 2,000 1, Number of herds > 500 Herd size (cows) 0 Number of herds Average milk yield Figure 4.4. Herd size and milk yield correlation There is a trend to higher yields with larger herd sizes. This is generally quite modest and only occurs at lower herd sizes up to 200 cows. At farm sizes above this, there is no discernible trend in average yields. Butterfat and protein: average levels, including by calving pattern and herd size The quality of milk being produced is increasingly important in the dairy sector. More contracts, especially in the manufacturing sector, are basing the milk price on kg of milk solids (butterfat and protein) rather than litres of liquid milk. This trend looks set to continue and may be particularly important in Wales where a greater share of milk goes into manufacturing uses. This information was not collected in the 2014 survey, so it is not possible to tell whether new pricing arrangements are having an effect on farmers production decisions. Figure 4.5 shows there is no overall correlation between farm size and the milk quality being produced. Average butterfat and protein (%) > 500 Herd size (cows) Average butterfat Average protein Figure 4.5. Milk solids per herd size 34

35 Figure 4.6 demonstrates a much stronger link between production system (in this case taken to be calving pattern) and milk quality. It is clear that spring-calving herds, on average, have the highest percentages of butterfat and protein. All-year-round calving herds have the lowest. To some extent, this will be a function of timing. Milk produced from high-quality and plentiful spring grass tends to be higher in solids. Also, as milk yield per cow increases, the percentage of fat and protein falls. The level of solids in milk is determined by genetics first, and feeding and management second. However, of greater importance is the interaction between total yield and milk solids. To some extent, high yields dilute butterfat and protein. It is likely that many all-year-round herds will be aiming for high yields in litres rather than kg solids, as that is what their milk buyer s contract requires, while spring-calving herds will have lower yield in litres but higher solids. Breeding will also play a part. Spring-calving herds often have crossbred-type cows which naturally produce higher milk solids Butterfat and protein (%) All-year-round Autumn block Unspecified block Spring block Butterfat Protein Figure 4.6. Milk solids by calving pattern Milk recording contracts, including by calving pattern and herd size The data in Table 4.3 shows that block-calving herds tend to be less likely to milk record than all-yearround producers, spring-block calvers demonstrating the least likelihood. Milk recording is often taken as a proxy for better quality management on dairy farms. It would probably be unwise to overstate the linkage between production system and milk recording. The higher percentage of recording among block calvers is probably less to do with the production system they are operating, and more due to the fact there is greater management focus within these businesses. Many lower-performing dairy farms will simply default into the all-year-round category. Note also that milk-recorded herds tend to be larger than non-recorded herds. Again, this might be a correlation with farmer management and ambition but, also, as farms become larger, it becomes increasingly difficult to monitor each cow without such recording programmes. It is a precision farming management system at work. Table 4.3. Dairy farmers using a milk recording programme System Not milk recording Milk recording Overall % Herd size % Herd size Herd size All-year-round Autumn block Spring block Unspecified block Table 4.4 below suggests those farms that undertake milk recording are overall a little more profitable than those that do not, particularly for all-year-round calving patterns. It is necessary to consider cause and effect. As outlined above, milk recording is evidence of a more professional approach to business management. This, in turn, leads to greater profit. And, in the long term, perhaps larger herd sizes as the business is able to grow and expand. 35

36 Table 4.4. Milk recording and profit ( /farm) System Not milk recording Milk recording Average All-year-round -30,154-31,701-30,936 Autumn block 8,331 4,944 6,843 Spring block -11,527 16,632-2,887 Unspecified block 9,025-18, Information on milk recording was not gathered in the 2014 survey. So it is not possible to determine whether there are any notable trends in this management practice. Type of milk contract and milk buyers Table 4.5 shows the type of milk contract that producers are operating under, and how this has changed since Aligned milk contracts are those where producers are within a nominated group supplying a particular retailer (often, but not always, fresh liquid milk). Other liquid is those supplying the fresh milk market, but outside of a retailer scheme. Balancing contracts run by brokers can divert milk to a variety of markets, depending on the demands and price paid at any point in time. Solids/manufacturing is milk that will be processed into products. In Wales, this will be mainly cheese, but also includes various milk powders, butter and yoghurts. Table 4.5. Milk contract type % of respondents Aligned 4 5 Other liquid Balancing (brokers) 7 5 Solids/manufacturing Other 1 6 This demonstrates that over a relatively short four-year period, the Welsh dairy industry has changed quite a bit. While there have been no large-scale closures, growth and investment at some dairies such as South Carmarthen Creamery and Dairy Partners has changed the proportions of milk contracts. Table 4.6 below shows how farm profitability interacts with both calving system and milk contract type. Overall, those on aligned contracts showed the highest returns. This is not surprising as, during the period of the survey, milk prices generally were very low, with aligned contracts operating at a large premium to the general market. Balancing contracts was generally the least profitable, but there is some disparity between systems. For example, under some block-calving systems, the returns were actually very good. It should be noted that, because of the smaller number of block calvers in the survey, the figures can be skewed by a few individual farms. The liquid market has, historically, been a premium outlet for milk. There is a demand for daily, yearround supply to high standards. However, it can be seen that, during the survey period, the liquid market outside of aligned contracts was delivering lower profitability than manufacturing or balancing contracts. The costs of producing milk to meet the demands of many liquid milk processors is considerably higher, largely as these usually demand a relatively flat supply flow throughout the year, not fitting neatly with generally lower cost block-calving systems. Table 4.6. Dairy profit by milk contract type (ppl) All-yearround Autumn block Block unspecified Spring block Average Aligned n/a Balancing Liquid Solids/manufacturing Weighted average

37 Table 4.7. Number of farms by milk contract type All-yearround Autumn block Block unspecified Spring block Total Aligned Balancing Liquid Solids/manufacturing Total Table 4.7 highlights the numbers of farms in some of these categories is low and, therefore, the data is less robust in these categories than those with several. Also, a larger proportion of block-calving herds (especially spring-block calving) is on solid/manufacturing contracts. This fits in with the discussion above about higher milk solids among herds managed in these ways. Figure 4.7 shows the change of milk buyers over the three-year period from 2014 to 2017 in Wales. Eighty-five per cent of farms had not changed, but 15 per cent of farmers had either elected to change milk buyers or the milk buyers had merged or changed supply. Others Tomlinsons Llaeth Cymreig County Milk Dairy Partners Meadow Foods SCC Glanbia First Milk Arla Müller Suppliers (%) Figure 4.7. Milk buyers and percentage of farmers supplying them Table 4.8. Farms, herd sizes and yields per contract type Contract type Average number of dairy cows Number of farms Average milk yield per cow (litres) Aligned ,643 Balancing ,020 Liquid ,284 Other ,225 Solids ,341 Average or total 168 1,054 6,810 Contract type in comparison to average herd size shows that aligned contracts seem to have larger herds, while herds on balancing contracts tend to have much lower cow numbers. This difference is also reflected in the average milk yield. 37

38 5. Greenhouse gas emissions indicators Background to the potential use of these indicators This section takes data from the 2017 survey and produces a series of indicators that look at greenhouse gas (GHG) emissions for the Welsh dairy sector. This data was not collected during the 2014 survey, so analysis of trends is not yet possible. However, it is suggested that the statistics presented can act as a baseline for future work, and also to stimulate discussion and action around adopting climate-friendly production systems. Animal efficiency (milk solids per cow liveweight) The UK dairy industry has, traditionally, focused on litres of milk produced whether this be per farm, per hectare or per cow. However, this does not focus on the valuable nutritional component of the milk ie the milk solids of fat and protein. For manufactured milk products (which predominate in Wales), these outputs are the important element. Even in milk destined for liquid markets, the contribution of cream which is separated off is important in the overall price being paid. Therefore, industry thinking and the pricing of contracts, are increasingly centred on milk solids. As the important part of the milk, it makes sense for GHG analysis to be undertaken on this basis, too. Figure 5.1 below shows the volume of milk solids produced per kg of cow weight at various different weights of cow. It can be seen that lighter (smaller) cows produce proportionally more milk solids for their weight than larger cows. This suggests that smaller cows are more efficient than larger ones. Very simply, as a cow gets bigger, the milk solids produced over a lactation are likely to represent a smaller percentage of body weight. 1.2 Kg of milk solids per kg cow liveweight up to ,000 Cow liveweight (kg) Figure 5.1. Milk solids per kg cow liveweight 38

39 Figure 5.2 uses similar data and shows that body weight is not everything. As a cow s milk yield increases, so the total milk solids represent an ever-increasing proportion of her body weight. In other words, combining the messages from the two charts together, clearly, both the cow s weight and milk yield are important in this efficiency measure. It s the large cows with low milk yields that are least efficient and the smallest cows with high milk yields that are most efficient. 1.8 Kg of milk solids per kg cow liveweight ,000 3,000 4,000 5,000 6,000 7,000 8,000 Milk yield (l) 9,000 10,000 11,000 12,000 13,000 14,000 Figure 5.2. Milk solids per kg of cow liveweight by milk yield Concentrate feed rate (kg DM/l) As a generalisation, and up to a certain point, a healthy cow of certain genetic potential, the more energy and protein you feed her, the more milk she is likely to yield. This statement might more or less hold water, but the law of diminishing returns holds true, as Figure 5.3 demonstrates. It shows that the additional feed to raise a cow s yield from say 3,000 litres to 4,000 litres is relatively small, but the incline is exponential, as yield rises meaning to raise yield another 1,000 litres cost more additional feed than the first rise. It uses the average purchased feed price for the entire dataset. The chart suggests that, to push a cow to very high yields, requires a major step in herd nutrition. 0.6 Kg of dry matter of feed per litre of milk ,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 Milk yield (l) Figure 5.3. Dry matter of feed used per litre of milk yield 39

40 It is worth examining the marginal cost of raising milk yields in this way. Figure 5.4 is a complicated but important chart. The law of diminishing returns is an expensive one for those operating at the highest levels of yield. It shows the additional cost of feed required to raise milk yield by 1,000 litres to the next level. So, for example, to move a cow s yield from 7,000 to 8,000 litres per year would cost about 15 pence for each of those 1,000 additional litres. At the top end, there is not much left in the value of a litre of milk to cover other costs beyond feed. The dataset is not perfect (all farms are different) so the chart trend line is not smooth, hence a trend line is included Cost of purchased feed for top 1,000 litres of yield (ppl) ,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 Average milk yield (l) p/l marginal cost Trendline Figure 5.4. Additional cost of purchased feed for last 1,000 litres per cow of yield Age at first calving The sooner a maiden heifer calves and starts producing milk, the sooner it starts to repay the investment that has been made in rearing it and fewer heifers are required to provide the replacements. A heifer that takes a long time to start producing milk is (literally) eating up resources and contributing to GHGs. This is inefficient, both for the herd in question and the industry generally. The optimum age for first calving is 24 months. Physiologically, it is difficult to calve a heifer much before this as it is too immature. Good heifer rearing techniques are needed to ensure the animals are ready. Hitting the two-year calving age is especially important in block-calving herds to maintain the block if first calvings are not close to the two-year anniversary, the calving period becomes extended. Figure 5.5 shows that 24 months sees the largest proportion of calvings, but that there are significant numbers calving after this indicating a level of inefficiency. It is noteworthy there is another peak at 30 months ie six months after the two-year ideal Respondents (%) Age at first calving (months) Figure 5.5. Age of heifer at first calving 40

41 Slurry and manure storage Manure and slurry are treated by a few dairy farms as waste products from dairy production a problem to be dealt with. They do, of course, contain high levels of nutrients that can benefit land, and thus should be treated as a resource to be utilised as the majority of farms practise. These products also have significant environmental impacts. These can be local (point of source), such as leaching of slurry into watercourses causing pollution, or diffuse impacts with methane and nitrous oxide being released from manure contributing to GHG emissions. The correct storage and handling of slurry and manure minimises such issues. Figure 5.6 shows the main storage methods on the farms surveyed. Primary storage is the farm s first method of manure and slurry storage, therefore all farms have a primary storage system. Most farms have a secondary system, as an alternative system to accommodate different segments of waste such as slurry for one and manure for the other or to suit the layout of the farm. Covered muck store Concrete manure store Slurry bag Clamp (silage clamp when not in use) Undercover heap Slurry store Slurry pit Field heap Butyl (plastic) lined lagoon Under slatted shed tank Concrete panel lagoon Cast concrete walls Slurry tower/tin tank Earth lagoon Secondary storage Number of farms (%) Primary storage Figure 5.6. Primary and secondary methods of manure and slurry storage All dairy farms have some form of permanent physical infrastructure to store animal wastes. Although only a small proportion of Wales is within a Nitrate Vulnerable Zone which mandates set storage periods, good agricultural practice and general rules to prevent pollution mean that storage is almost a prerequisite. Rules are set down on the construction of storage facilities (see wsi/2010/1493/contents/made). Slurry lagoons in various forms are by far the most prevalent forms of storage. Of these, simple earth bank lagoons are more popular than concrete or plastic-lined structures, being less expensive to create and operate. There is an array of well-used primary systems (largely for slurry) on farms. However, the secondary storage system is clearly a field heap with over a third of farms using this system, albeit as secondary manure storage. 41

42 Slurry and manure spreading method In a similar way, we can see in Figure 5.7 the methods of slurry and manure spreading have been identified by the respondents as dealing primarily with slurry, identifying the slurry tanker and umbilical pipes first. Between them, these two methods account for almost two-thirds of primary spreading methods. However, again, the top secondary method is more widespread than the primary, with a muck spreader (rotary or side discharge) being used on 40 per cent of farms. Cultivator incorporated Shallow injection Splash plate Dribble bar Trailing shoe Muck spreader Umbilical pipe Slurry tanker Number of farms using system (%) Secondary spreading Primary spreading Figure 5.7. Primary and secondary methods of manure and slurry spreading Level of artificial nitrogen application Artificial nitrogen has hugely increased the productivity of modern agriculture. Its use is, therefore, not negative per se, but it needs to be used efficiently and not to excess in order to maximise its productivity benefits and minimise its environmental damage. There is an environmental cost in producing such fertiliser (mainly though energy use) and there can also be environmental costs in its use if it is not correctly applied and run-off occurs. In an efficient and sustainable farm system, artificial fertiliser should be seen as a supplement to organic fertilisers. 42

43 Figure 5.8 shows nitrogen (N) applications for various stocking rates. While there is a general upwards trend in N usage as more animals are carried on the land, it is not a strong trend. This is surprising as it would be thought that, at higher stocking rates, greater grass growth would be needed to feed the animals, and thus a higher fertiliser application would be required. It needs to be noted there is no consideration of how much grazed forage is contributing to overall diets. At the higher stocking rates, cows may be mainly fed on purchased feed (concentrate or imported forage) thus not requiring more grass to be produced. However, the relative lack of correlation between stocking rate and fertiliser use might tend to suggest that a standard rate of fertiliser is being applied to most grassland, irrespective of its actual needs. More closely matching N applications to requirements (either greater or lesser) might improve efficiency. Number of farms (%) Kg N per ha Number of farms (%) Stocking rate (GLU/ha) Average kg of N per ha Figure 5.8. Stocking rates and nitrogen per hectare by stocking rate (dairy and youngstock) Looking at N application against grazing days, as seen in Figure 5.9, an interesting pattern emerges. There is relatively high nitrogen use at the extremes, but less within the traditional summer grazers. The explanation is likely to be the level of focus on grassland management. Those housing cows all year round (or for the vast majority of the time) will be mainly feeding conserved forage (silage). The grass will be grown as a crop to be harvested, with regular and quantified applications of N to maximise the volume of production. At the other end of the scale, the extended grazers, as the name suggests, are very focused on producing milk from grazed grass. Careful management of grassland (including applications of fertiliser to optimise output) will be part of this. The summer grazers may not consider grass to be quite as critical to their management system and so are less focused on its optimisation of growth. Kg N per ha Housed all year > 9 Grazing period (months) Figure 5.9. Bagged nitrogen use by grazing length 43

44 6. Future Intentions Results and comparison with 2014 Welsh Dairy Farmer Survey Many of the questions posed in the questionnaire were different to those asked in the Welsh Dairy Farmers Survey in The Farm Business Survey for England does not cover future intentions questions and neither did the AHDB Dairy 2017 Evidence Report. Comparisons are, therefore, not possible in this chapter. The difference between what somebody intends to do and actually does, is curiously large. This may be for several reasons, led primarily by the ease of allowing inertia to interrupt plans or expectations. Fear of the unknown is crystallised at the point of implementing a decision. The market (for product and price paid), along with the environmental conditions in which any farm operates, are always changing and, with them, ambitions will also shift. With this in mind, the survey was completed in the spring of 2017, when milk prices were relatively high compared with the previous two years and still rising; a somewhat different condition to when the 2014 survey was completed, when milk prices had recently peaked at the highest levels the UK (and the world) had ever seen but were starting to fall (refer to Market conditions page 5 and Figure 1.1). Intentions can also be interrupted by realities, including not being able to raise finance for something, a change in family circumstances and alternative demands for capital. Milk production intentions in next five years Table 6.1 below shows how respondents to the survey consider they will change their businesses in the coming five years. Almost half of the farmers are planning to increase their production and another third remain unchanged. The planned decline in production (by adding the six per cent who plan to exit and the 1.3 per cent who will decrease production) is a far smaller quantity than the additional volume of milk proposed by those wishing to expand by a ratio of approximately 10:1. This suggests that milk production in Wales is likely to increase. Growth in demand due to population increase, change in demand for products (eg butterfat) and possible Brexit opportunities suggest that demand might exceed supply over the period. Table 6.1. Respondents plans for the next five years Response rate 2014 (%) Response rate 2017 (%) Increase production Stay the same Decrease production 1 1 Exit 4 6 Don t know 5 9 Total Of the 35 per cent respondents that planned to keep production at a similar level for the next five years, 56 per cent were owner occupiers and a further 36 per cent had part-owned and part-rented farms. This is similar to the overall balance of land occupation. Those farmers who plan to leave the industry were, on average, losing 42,000 per year from their dairy enterprise, with an average of 126 cows yielding 6,300 litres each per year. 44

45 Increase production Stay the same Decrease production Exit Don t know 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 40 and under and over Figure 6.1. Age profile of farmer intentions Figure 6.1 clearly demonstrates that the farms run by a younger team tend to have more ambition regarding growth of their farm, and the older age bracket (on the right of the chart) is more likely to be considering decreasing production, or exiting. Younger farmers are more likely to have a vision for their farm while the older two age groups are more inclined not to know. Exits Three-quarters of those wishing to exit dairy farming are small farms with fewer than 150 cows. This is a considerably larger average herd size than four years ago when 80 per cent of those wishing to exit had fewer than 100 cows. In 2014, industry exits were greatest in the category but, as Table 6.2 demonstrates, those with 50 to 150 cows are more likely now, with over half of the leavers in that herd size category. However, as a percentage of each size cohort, the smallest farms are still the most likely to exit farming, with 15 per cent considering ending. Few large herds are looking to exit, but more very large herds are looking to decrease than increase or stay the same. Refer back to Figure 3.7 on page 27 to see how older farmers are more likely to manage small herds and young farmers run larger herds. Table 6.2. Table of farmer intentions by herd size > 500 Total Increase Decrease Stay the same Exit Don t know Total

46 Table 6.3 examines the same data but the percentages are for each herd size group rather than actual numbers. This is to compare the figures with those published in Table 6.3. Farmer intentions 2017 compared with 2014 (%) > 500 Increase Decrease Stay the same Exit Don t know > 500 Increase Decrease Stay the same Exit Don t know In 2017, there seem to be a larger range of farm sizes looking to exit, fewer very small farms looking to decrease in size further, and most farms in all size categories looking to remain unchanged or to grow. Analysis and results of succession plan questions At 55 per cent, just over half of respondents have made a succession plan, almost all of these involving a relative of the current farmer. Whether these are formal legal succession agreements or understandings is not clear. However, there is a clear correlation between those who think more about their own future business plans and a succession consideration as Figure 6.2 demonstrates. As can be seen, the majority of those who plan to exit the industry in the coming five years have no succession plan in mind. This might be a determining factor either for those retiring or more likely those carrying on; if a younger family generation is interested in farming in a few years time, it is highly likely to affect your decision to stop farming. Those who don t know what they will be doing in five years time are also unlikely to have a succession plan in place; two-thirds without a future plan also having no succession preparations. Those eager to grow their farm business are most likely to have thought about and put a business succession in place. Increase production Stay the same Decrease production Exit Don t know 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% No Yes Figure 6.2. Succession plans for future considerations 46

47 Table 6.4 demonstrates that the farmers on aligned milk contracts are more likely to want to increase milk production in the coming five years. However, this is closely followed by those on balancing contracts. In 2014, 75 per cent of those on aligned milk contracts were keen to grow their herd number. Table 6.4. Milk contract group and future intentions (%) Aligned Balancing Liquid Other Solid Don t know Exit Decrease production Stay the same Increase production Total* *Note: Figures quoted in the table may not total exactly 100% due to rounding Potential impact of intentions on milk production Welsh milk production is 1,245,334,100 litres in If all intentions are carried out, an additional 111,999,113 litres will be produced. This represents a nine per cent increase in milk production. Analysis and results of organic questions One farmer in the entire survey of over 1,000 respondents who are currently farming conventionally plan to become organic in the next five years. None of the 54 organic farmers who submitted responses to the survey are thinking about coming out of organic farming systems. The number of organic farmers is almost static and unlikely to change considerably. However, 91 per cent of them plan to increase their production or stay the same in five years. Conventional farmers averaged an 81 per cent increase albeit from a larger base as Table 6.5 demonstrates. Table 6.5. Comparison of organic with non-organic future intentions Non-organic Organic Decrease production 13 1 Don t know 90 1 Exit 63 2 Increase production Stay the same Total Analysis and results of implementing changes question Table 6.6 below identifies that, out of all the respondent population who are looking to improve their farming systems, two-thirds are exploring ways to improve their cows fertility. This is closely followed by improving yields, which we would generally take to mean increased yields, although some might consider they are pushing their cows too hard for their economic optimum. Table 6.6. Most likely changes to farm performance (%) Improve fertility Improve yields Change herd size Change feeding practices Change stocking rates Change calving patterns Change breed/ cross breed Change milking frequency Often these aims are linked, for example changing calving patterns may lead to increased fertility or a change in milking frequency could improve yields. It is noteworthy that fertility is clearly seen as an opportunity to improve performance in Welsh dairy farming. The benefits of tighter calving patterns, more days in milk and, therefore, more milk solids produced per cow maintained, and lower replacement rates, all stem from improved fertility, but such a high response rate suggests it is identified as a major problem in Welsh dairy farming. 47

48 Figure 6.3 shows a breakdown of the percentage of each age bracket that wants particular improvements in their businesses in the next five years. It demonstrates that the differences are marginal and that, irrespective of age, yields and fertility are the two top priorities for Welsh dairy farmers, followed by a focus on changing the herd size Number in age category (%) Feeding practices Herd size Calving patterns Milking frequency Improve fertility Improve yields Stocking rates Breed 40 and under and over Figure 6.3 Age categories of those wanting specific improvements in their businesses Renewable energy technology on farm Nearly 300 respondents to the questionnaire, representing about 27 per cent of the total, are interested in building or have already installed renewable energy facilities on their farms. Table 6.7 highlights the level of interest. Solar panels are the most popular, totalling 30 per cent, most of which is solar photovoltaic (for electricity generation). After that is wind power, then biomass. The level of interest in anaerobic digestion is small at two per cent. Table 6.7. Have you introduced or are planning to introduce renewable energy? (%) Yes of which: Photovoltaic panels Solar thermal Wind Biomass Anaerobic digestion Other Results of future direction of business Table 6.8 demonstrates that nearly half of respondents aim to build a business that can be taken on by another generation. This matches with the proportion that have succession plans in place. 25 per cent want to grow their business in order to maximise their returns and another 15 per cent want to keep to similar farming size as they have now. This compares with 13 per cent who wish to leave the industry or develop alternative enterprises to support their dairy herd, suggesting there is confidence within the Welsh dairy industry. Table 6.8. Future direction of the business Response (%) Future plans 46 To build a healthy, sustainable dairy business to pass on to the next generation To carry on as currently with as little change as possible in order to preserve my way of life To maximise the financial return from milk either by exploiting technology or new ways of working or by increasing the size of the business 9 To leave dairy farming when it s practical to do so* 4 To diversify the business in order to reduce reliance on milk *No definition of what practical to do so is given 48

49 The Farm Business Survey compiled a study in 2012/13 on farmer segmentation, identifying how farmers considered themselves and their work. It is summarised in Table 6.9. The survey was for all English farming, so a different geography and selection of farms and the categories the farmers could select to identify themselves, are not interchangeable. However, it is notable how similar the comments are to those of the Welsh Conditional Aid responses and how closely the proportions of farmers recognising themselves within each category. Table 6.9. Farmer segmentation in 2012 Response (%) Category name Definition 41 Modern family business Family success and income; financial planning important. 23 Custodians 22 Pragmatists Farming is a way of life, pride in job, heritage and the environment Focus on business success. However, still an emotional connection to farming 7 Challenged enterprises Farming is a burden and a struggle. Isolated and pessimistic 6 Lifestyle choice Source: Wilson, et. Al Farming is not the main source of income farm in a traditional style for pleasure Table 6.10 provides some detail on the division of Table 6.8 in the study. It identifies who is planning to develop their dairy farming career, who is looking to move out and so on. Almost half of farmers are wanting to build a healthy sustainable business for inheritance purposes, but a third, particularly of younger farmers who block-calve large herds are eager to maximise the financial returns of the dairy farm. It is mostly all-year-round calving herds that are looking for an exit opportunity. Table Future direction of dairy farming business in sectors Block calving herds Number of farmers (%) Mean age of proprietors Mean number of cows To maximise the financial return from milk, either by exploiting technology or new ways of working or by increasing the size of the business To build a healthy, sustainable dairy business to pass on to the next generation To carry on as currently with as little change as possible in order to preserve my way of life To diversify the business in order to reduce reliance on milk To leave dairy farming when it s practical to do so Average All-year-round calving herds Number of farmers (%) Mean age of proprietors Mean number of cows To maximise the financial return from milk either by exploiting technology or new ways of working or by increasing the size of the business To build a healthy, sustainable dairy business to pass on to the next generation To carry on as currently with as little change as possible in order to preserve my way of life To diversify the business in order to reduce reliance on milk To leave dairy farming when it s practical to do so Average

50 7. Conclusions and final thoughts The gathering of this data at an industry level is a worthwhile undertaking, as it provides a robust evidence base for analysis and policymaking. At the farm level, the collection and submission of the data may have helped some farms think in more depth about their business. It is trusted that the results of this analysis will also be useful within the industry to stimulate debate and drive new thinking into Welsh dairying. The data from the survey suggests that the Welsh dairy sector has a wider range of profitability than that in the overall GB industry, and that, on average, profitability is lower. This finding needs to be cautioned with the fact that the methodology for collecting the data was different in each case. Part of this will be due to the low manufacturing milk prices being paid during the period of the survey with Wales being especially exposed to these. However, this is a topic that could warrant further investigation to find out if there are any factors that are specifically impacting on the profitability of Welsh dairying. While it is recognised that much of the data referred to a period when milk prices were low, it is concerning how few farms were making any money from their farming business, and were presumably dependent on their subsidy payments. The top quartile performing farms managed to demonstrate that profitable dairy farming is possible and excellent returns, even in difficult trading conditions, can be achieved with a focus and determination on the job. Even in times of high milk prices, those in the bottom quartile, with costs of production beyond levels the milk price has ever reached, suggest there are some fundamental problems with the structure of many farms and possibly the industry. Technical improvements are unlikely to solve the majority of problems where costs are escalating beyond 30ppl, without a strategic rethink. Comparing the 2017 survey to the one undertaken in 2014, it can be seen there has been consolidation in the producer base, with fewer, larger farms. This is a trend not unique to Wales, or to the last three years it is a feature of most agricultural sectors in developed nations. The price of the commodities farmers produce, including milk, tends not to rise as fast as inflation in the general economy. Farms, therefore, must constantly become more efficient and/or bigger, merely to maintain the same standard of living over the long term. This is not to say that big farms are, by definition, more efficient than small ones. There are many good small farms, in the same way there are poor large operators. The figures show those operating at smaller scales often have higher overhead costs as they struggle to match lumpy inputs like labour and machinery to their output. There are many positive points to bring out of the survey. Young farmers are coming into Welsh dairy farming which will bring enthusiasm and new ideas. The survey found that the sector is taking its responsibility to the wider environment seriously, with most farms adopting practices to minimise the emission of greenhouse gasses. Overall, nearly half of dairy farms were still looking to grow their businesses over the short to medium term. This is despite the sector being in a price slump at the time of the survey. This demonstrates the resilience, optimism and can-do attitude of the Welsh dairy farmer. businesses over the short to medium term. This is despite the sector being in a price slump at the time of the survey. This demonstrates the resilience, optimism and can-do attitude of the Welsh dairy farmer. 50

51 8. Appendices Annex on farm profitability and farm size charts The two following charts were produced after the completion of the report. They are of particular value to the interpretation of the dairy farming sector so have been included here. The first, Figure 8.1 shows the profitability per litre of milk. This shows that the farmers of larger farms tend to find greater efficiencies per litre of milk produced. The second chart, Figure 8.2, shows that larger farms tend to have either greater profits or greater losses. In simple terms, if a farmer makes or loses money on each litre of milk produced, then the more milk they produce, the greater their profit, or loss. We cannot conclude that larger farms are better or make more money because, as can be seen, large farms both make most and lose most. However, as a generalisation, it might be more prudent to assume that better managed farms have the ability to grow successfully. Whereas others, hope to improve their businesses situation by just expanding. The categorisation of farm size is according to equal quarters of cow numbers in the herd which are as follows: Small Up to 75 cows Small/medium cows Large/medium cows Large Over 170 cows Small Small/ medium Large/ medium Large herds Dairy profitability (ppl) Lowest performing Low medium High medium High Figure 8.1. Farm profitability and farm size (ppl) 150, ,000 Dairy profitability ( ) 50, , ,000 Small Small/ medium Large/ medium Large herds -150, , ,000 Lowest performing Low medium High medium High Figure 8.2. Farm profitability and farm size ( /farm) 51

52 References Wilson, Paul & Harper, Nicholas & Darling, Richard. (2013). Explaining variation in farm and farm business performance in respect to farmer behavioural segmentation analysis: Implications for land use policies. Land Use Policy /j.landusepol McHoul, Helen, Smith, Davina, Robertson, Philip & Wilson, Paul. (2017). Farm Business Survey 2015/2016 Dairy Farming in England. Promar International Limited (2014). Welsh Dairy Farmers Survey Report, prepared for Coleg Sir Gar. AHDB Dairy. (2017). Evidence Report GB Dairy Herd performance 2015/2016. Redman, Graham. (2017). The John Nix pocketbook for Farm Management 2018 Edition. Pub. Agro Business Consultants in Melton Mowbray. Authors Lead author: Graham Redman Co-authored by: Richard King and Tony Evans The Andersons Centre Old Bell House, 2 Nottingham Street Melton Mowbray, Leicestershire LE13 1NW, UK Tel: +44 (0) Produced for you by: AHDB Dairy Stoneleigh Park Kenilworth Warwickshire CV8 2TL T E dairy.comms@ahdb.org.uk W If you no longer wish to receive this information, please us on comms@ahdb.org.uk While the Agriculture and Horticulture Development Board seeks to ensure that the information contained within this document is accurate at the time of printing, no warranty is given in respect thereof and, to the maximum extent permitted by law, the Agriculture and Horticulture Development Board accepts no liability for loss, damage or injury howsoever caused (including that caused by negligence) or suffered directly or indirectly in relation to information and opinions contained in or omitted from this document. Agriculture and Horticulture Development Board All rights reserved.