Financial Performance of Australia's Dairy Farms

The national average farm cash income of dairy industry farms increased from $75 110 in 2009–10 to $141 000 in 2010–11, the highest since 2007–08, according to a report from the Australian Bureau of Agricultural and Resource Economics and Sciences.
calendar icon 5 June 2012
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The Australian Bureau of Agricultural and Resource Economics and Sciences

Introduction

This report draws heavily on information obtained from dairy producing farms included in the ABARES annual Australian dairy industry survey (ADIS), which is part funded by Dairy Australia. It expands on farm survey results that were published in Agricultural commodities March quarter 2012 released at the ABARES Outlook 2012 conference.

The ADIS was conducted between July and November 2011, covering 2010–11 and making projections for 2011–12. Results are reported at national and regional levels, covering northern New South Wales and Queensland, northern Victoria and Riverina (NSW), Tasmania, Western Australia, South Australia, the Gippsland region (Vic.), western Victoria, and southern and central New South Wales (Map 1).

Dairy Australia commissioned ABARES to summarise the key results of ADIS into statistical tables and figures, as set out in this report.

Dairy Farming Regions

Dairy industry financial performance

2010–11

The national average farm cash income of dairy industry farms increased from $75 110 in 2009–10 to $141 000 in 2010–11, the highest since 2007–08 (Figure 1). The increase in average farm cash income was mainly due to higher prices paid for milk in regions producing manufacturing milk. Milk production remained similar to that in 2009–10, despite improvement in grazing conditions and increased availability of irrigation water (Table 1).

The improved seasonal conditions resulted in an increase in on-farm fodder production, which helped reduce fodder costs for dairy farms by 8 per cent in 2010–11 (Table 1). However, other farm costs, such as interest payments, increased in 2010–11 and as a result average dairy farm costs remained relatively unchanged from 2009–10 (Table 1).

Farm Cash Income and Farm Business Profit
Average Per Farm

2011–12

In 2011–12, the average farm cash income for dairy farms is projected to decline slightly from $141 000 in 2010–11 to $136 000 per farm (Table 1). This decline is mainly due to lower milk prices. A small increase in milk production is expected in 2011–12 as a result of further improvement in seasonal conditions, increased availability of irrigation water and lower fodder prices in 2011–12 (Table 1).

Financial performance and outlook by region

2010–11

Farm cash income for dairy farms in much of Victoria, Tasmania, South Australia and the southern dairying regions of New South Wales increased in 2010–11. The increase was a result of higher prices paid for milk in regions producing mainly manufacturing milk, and a small increase in milk production. Average farm cash income in Gippsland and western Victoria rose to $148 000 and $157 900 per farm respectively in 2010–11. Over the same period in Tasmania, farm cash income increased to $159 900 per farm (Table 2). In contrast, average dairy farm cash income declined in other parts of New South Wales and Western Australia, as a result of a decline in average milk prices.

2011–12

In 2011–12, average dairy farm cash income is projected to increase in Tasmania, northern Victoria and Riverina in response to increased milk production (Figures 2, 3 and 4).

In Tasmania, a relatively large increase in milk production is expected to boost average milk receipts and, despite increases in cash costs, result in farm cash income in that state rising to average $211 000 per farm (Figures 2 and 4).

Milk receipts for other dairy regions are expected to decline. In northern New South Wales, Queensland, Western Australia and South Australia, lower milk prices combined with reduced milk production is projected to result in lower farm cash incomes, despite some reduction in total cash costs as a consequence of reduced expenditure on fodder. Farm cash income is projected to average $126 000 per farm in Western Australia and $152 000 in South Australia. In Gippsland, lower milk prices combined with increased expenditure on fertiliser and repairs is projected to result in farm cash income declining to $99 000 per farm in 2011–12 (Table 2).

The improved seasonal conditions are expected to result in a reduction in fodder expenditure and lower total cash costs in 2011–12 for all regions except Tasmania and Gippsland. The proportion of total cash costs accounted for fodder is expected to decline (Figure 5); however, fertiliser costs are expected to increase in all regions as dairy farms produce more feed on-farm (Table 4).

Farm Cash Income, by Region
Average Per Farm


Maximum Cows Milked for More than 3 Months, by Region
Average Per Farm


Milk Production, by Region
Average Per Farm


Ratio of Fodder Costs to Total Cash Costs, by Region
Average Per Farm

Capital investment, farm equity and debt servicing

2010–11 appears to have been a period of consolidation for dairy farmers with higher incomes and a smaller level of investment in capital additions leading to some lowering of debt. This trend is likely to have continued into 2011–12. The recent decline in average land values may have also contributed to the desire and need to reduce debt levels.

In 2010–11, net capital additions of dairy farms declined from $78 000 to average $56 000 per farm (Figure 6). The proportion of dairy farms acquiring additional land declined in 2010–11 compared with 2009–10 (Figure 7).

Average debt per farm in the dairy industry declined in 2009–10 and is estimated to do so in 2010–11 (Figure 8). Debt for land purchase continues to account for the largest share of dairy farm debt, with borrowings to provide working capital accounting for the next largest share of average farm business debt (Figure 9).

Average farm equity has remained strong despite a large proportion of debt being used to fund land purchase and working capital, because the rise in debt over the previous years was mostly offset by increases in land values since 2001–02 (Figure 10). The average equity ratio for dairy farms at 30 June 2011 was 81 per cent (Table 1). The proportion of dairy farms estimated to have a farm business equity ratio of greater than 70 per cent was 75 per cent in both 2009–10 and 2010–11 (Table 3). Significantly, the proportion of farms with equity ratios below 70 per cent and with negative farm cash income halved from 14 per cent in 2009–10 to 7 per cent in 2010–11. Often, farms with negative farm cash income need to increase borrowing to meet the shortfall in cash flow.

Net Capital Additions

Increase in average farm debt resulted in the proportion of farm cash income needed to meet interest payments (debt servicing ratio) trending upward between 2002–03 and 2009–10 (Figure 11). In 2010–11, the debt servicing ratio declined as farm cash incomes rose; the ratio is expected to be similar in 2011–12 due to slightly lower interest rates, but still above the debt servicing ratios experienced during the 1990s.

Proportion of Dairy Farms Acquiring Land


Dairy Farm Debt
Average Per Farm


Composition of Dairy Farm Debt
Average Per Farm


Farm Debt and Land Values
Average Per Farm


Debt Servicing Ratio

June 2012

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