How to shift the dial on farm costs

Text: After 30 years' dairying on the same Bay of Plenty farm, Donna and Corrie Smit have learned lessons on weathering everything from devastating floods to milk-price fluctuations. As costs climb ever upward, the Smits are applying their learnings from previous peaks and troughs at a time when many farmers are struggling to maintain profitability.

Farmers involved in DairyNZ's Budget Case Study project, which includes the Smits, have experienced an average increase in operating expenses over the past two years of an eye-watering 23per cent, up from $4.34/kgMS to $5.35/kgMS. That $1.01/kgMS jump in costs has been covered by the rise in gross farm revenue of $1.26/kgMS, most of this being needed to pay for the higher interest rates and living expenses. The Smits have stuck to a "keep it simple" approach. At its core, and playing a key part in holding costs down, is the mantra to "grow more grass and turn it into milk", capitalising on what will always be the lowest-cost feed source at hand.

"We do use some supplement, about 100t of PKE [175kg/cow/pa] over summer to help keep condition on cows when they stop eating as much grass over the hottest days, but that's as far as it goes, and we're working on a System 2 approach," says Donna. That ability to maximise the cheapest feed possible has been aided by committing to the highest-quality farm they could afford. The free-draining flats around Edgecumbe weren't the cheapest when they purchased their farm, but they're capable of generating quality grass.

"We first had a property at Otakiri, nearer Kawerau, but it was too dry, and another property below sea level that was on a flood plain," she says. "There are lots of ways to maximise your profit - ours was to buy a quality asset to grow good grass on. You make more profit from day one, which means you can pay off debt earlier and then you're ahead."

Today, the property they've added to 14 times is "tidy but not highly automated", reflecting their simple approach, she says. Growing plenty of grass has enabled them to hold their farm working expenses (this excludes unpaid family labour and depreciation, which are operating expenses) at about $2.90/kgMS over the past few years, pushed up to $3.50/kg MS for the past year.

"But this was largely our decision, opting to take advantage of the higher payout and spend some more on repairs and maintenance than we usually would," Donna says. Winding costs back

Their ability to adjust to rising farm costs stems from their second principle: to keep costs as variable as possible, rather than be lumbered with ongoing, fixed costs.

The "keep it simple" approach fits well with this. There are no major overheads, like extra expensive depreciating machinery and infrastructure associated with high supplement inputs. Meanwhile, good fertility levels mean they've been able to tune back fertiliser inputs with confidence in the past year.

The Smits also work hard to minimise hidden costs and waste, which demands a quick response to problems, whether it's a leaky trough or lame cows, to avoid a far greater expense later. "Lame cows are a good example," Donna says. They also encourage staff to put items back where they found them, and always have a spare on hand.

"If things don't go back where they should, you end up being unable to find them and buying another, only to find the original later. "We ensure it's as simple as having a spare trough arm on your farm bike to make a repair when you see it," she says.

Strong relationships

The Smits have also worked hard to build strong relationships with the businesses and suppliers they deal with, often for decades. "In return, we do expect quality, service and cost effectiveness." These open, well-founded relationships enable them to have honest conversations about price rises. "They may not always mean you get the increase reversed, but you do at least get to understand why it has happened," Donna says. The couple regularly look at where their cost centres in the business are heading.

"We'll do a deep dive into one cost component every three months. For example, electricity is one area you can change your supplier and get a better deal. Insurance is another where you can work together, altering sum insured or excesses to meet the budget."

Flexibility within their farm cost centres has meant, this year, they can dial up spending on labour, including staff bonuses and training. The Smits recognise the value of their team, and work to keep them on board.

"It's also been a particularly tough, wet calving season, and we've been able to add in some bonuses and extras to let them know we appreciate how tough it's been," Donna says. Bunnings vouchers and meals out have proven particularly popular with their Edgecumbe crew.

Emissions pricing

The Smits will fit greenhouse gas emissions pricing into their low-cost, simple approach.

"We're focusing on breeding better, lighter cows that deliver more kgs of milksolids per kg of bodyweight, by moving from a Friesian herd to a cross-bred herd. "We're now doing four herd tests a year instead of two, identifying the lower Breeding Worth cows, mating them to Hereford genetics, with the higher ones to Premium sires, keeping their heifer calves as future replacements."

Because the Smits are milking through two separate dairies side by side, they are well positioned to look at automating one of them with robotic milking, Donna says. Their ability to move cows suited (or not) to such a system between the farms and labour savings make it an attractive option.

Donna sees robotic milking becoming a popular option as ageing owners look to stay engaged with farming: "We're not quite there yet in terms of the capital cost, but I think it will be getting closer with the next generation of milking robots." -DairyNZ