11 Dairy Tomorrow Measures
11.1 Annual Update
The Dairy Tomorrow Strategy outlines the aspirations that the New Zealand dairy sector wants to achieve to be competitive, productive, trusted, and valued. A core part of the Strategy is the development of an integrated set of measures for dairy farms. This report focuses on the four measures that together have been selected to help capture the international competitiveness and resilience of the New Zealand dairy sector from an economic perspective. These measures are:
The cost of production, measured in terms of dollars per kilogram of milksolids, is a popular metric in global studies of competitiveness. In the New Zealand context, it is measured as operating expenses ($) per kilogram of milksolids. A lower cost of production mitigates the impact of a low milk price on profitability and results in increased operating profit during high milk prices. It is a key measure of resilience as a low cost of production helps to buffer the impacts of a change in the milk price on a farm business.
The dairy operating profit margin (%) is the ratio of operating profit and gross farm revenue. The dairy operating profit margin is a percentage most often between zero and fifty. A higher value denotes that a farm produces a given level of revenue at a lower cost, indicating that it is can better survive through turbulent market and production conditions.
The operating return on dairy assets, measured in percentage terms, is a key financial metric used worldwide to measure how effectively a business is employing their asset base. This metric captures the ability of a farm to grow through careful, considered investment in high-performing assets.
The equity to milksolids metric, measured in dollars per kilogram of milksolids terms, reflects resilience through its focus on the value of the farm business asset that is owned and not borrowed. Controlling for the level of milk production makes it easier to compare across farms, both nationally and globally.
The Dairy Tomorrow measures are reported in Tables 11.1 through 11.4 by quartiles and the mean. The quartiles can be interpreted as follows:
The 25th percentile for a variable represents a value where 25 percent of the data is lower.
The 50th percentile or median represents the centre of the data, such that 50 percent of data points are lower, and 50 percent are higher than this value.
The 75th percentile represents a value such that 75 percent of observations are lower than this value.
In comparison, the mean is an average calculated by adding all values together and dividing by the number of observations. The mean provides an average across the values for all observations.
Note:
’- Cost of production = Operating expenses