7 Owner Operator: Regional and Systems Financial Analysis
7.1 Regional Profitability
DairyBase® classifies farms into eight regions, five in the North Island and three in the South Island (refer to Section 2.6). The values reported in Table 7.1 and 7.2 are median values to reduce numerical bias created by the average of sums methodology in regional samples. Thus, totals and sub-totals in these tables will not add up but will better represent the average values of the data sample. See section 2.11 for an explanation of this methodology.
Table 7.1 shows the values of key performance indicators (KPI) per kilogram of milksolids in the eight regions, for the 2022-23 season. Dairy farms in the Taranaki region had the smallest herd size (260 cows), followed by Northland (290). The Canterbury and Otago-Southland regions had the largest herd sizes in New Zealand, with 718 cows and 610 cows, respectively.
The West Coast - Top of the South, Northland and Lower North Island regions had the lowest stocking rates in the country, with 2.4, 2.4 and 2.5 cows/ha, respectively. Canterbury had the highest stocking rate (3.4 cows/ha), and the remaining regions had a stocking rate that varied between 2.8 and 2.9 cows/ha.
Northland recorded the lowest average milksolids production per cow of all the regions (349 kg MS). The other four North Island regions recorded milksolids per cow between 387 and 416 kg MS (Table 7.1). The Otago-Southland region had the highest milksolids production per cow (466 kilograms) in the South Island and the rest of the country. However, Canterbury production is considerably higher on a per hectare basis (1,474 kilograms) due to its higher stocking rate.
The average payout received in each region varied between $8.52 and $8.71 per kilogram of milksolids sold. Regional average farm working expenses (FWE) per kilogram of milksolids were lowest in Taranaki ($5.08), and the highest FWE per kilogram of milksolids was reported in Northland and Canterbury ($5.69 each). Canterbury ($4,495), Taranaki ($3,354), and Otago-Southland ($3,353) recorded the highest operating profit on a per hectare basis, while the West Coast - Top of the South region recorded the lowest operating profit per hectare ($1,587). Farms in the Taranaki and Canterbury regions experienced higher levels of profitability in 2022-23 relative to other regions in terms of dairy operating profit per kilogram of milksolids (Table 7.1).
Table 7.2 shows the values for the key indicators of financial position for the eight regions in 2022-23. The values reported in this table are medians; see section 2.11 for an explanation of this methodology. Regional median for operating returns on dairy assets ranged between 4.2 and 6.6 percent. Canterbury (6.6%) and Otago - Southland (6.4%) had the highest operating return on dairy assets in 2022-23. Northland had the lowest operating returns on dairy assets (4.2%). In the case of total return on assets, Northland (11.0%) and West Coast - Top of the South (10.7%) recorded the highest values, while Waikato recorded the lowest (1.7%).
Total return on equity is the return on the owner’s funds, including capital changes after interest is paid. All regions had a positive percentage of total return on equity, except for Waikato, which was -0.3 percent (Table 7.2). The regional median for equity growth was negative for Waikato (-2.1 percent) and Canterbury (-1.8 percent), but positive in the other regions. Northland and West Coast - Top of the South had the largest growth in equity (15.9% and 17.8%, respectively).
Average term liabilities per kilogram of milksolids in 2022-23 varied significantly between regions. The range in term liabilities was $15.62 to $28.37 per kilogram of milksolids. Taranaki was the region with the highest term liabilities per kilogram of milksolids ($28.37) while West Coast - Top of the South was the lowest ($15.62/kg MS). Debt to asset levels also varied significantly between regions. Bay of Plenty and Northland had the lowest values (40.0 and 40.4 percent, respectively), while Taranaki had the highest (54.5%).
7.2 Production Systems
DairyBase® categorises farms into five production systems based on the quantity of feed purchased (including off-farm grazing) and the timing and use of imported feed (refer to Section 2.7 for production system descriptions). For the following analysis, the systems have been combined to produce three categories: low (systems 1 and 2), medium (system 3) and high (systems 4 and 5). Within each production system, there is variation in milksolids production and profitability. The production system type is not a good indicator of profitability as a farm can be profitable (or unprofitable) operating at any system. Profit is less to do with the production system type and more to do with the management, milksolids production and the costs within the production system.
The averages reported in Table 7.3 and 7.4 are median values to reduce numerical bias created by the average of sums methodology in regional samples. Thus, totals and sub-totals in these tables will not add up but will better represent average values in the data sample. See section 2.11 for an explanation of this methodology.
Table 7.3 shows the key 2022-23 average performance indicators per kilogram of milksolids in the three production system categories. Average stocking rates increase from low to high production systems. Average milksolids per cow and per hectare also follow this trend, reflecting higher inputs of supplementary feed. On average low system farms recorded 372 kg MS per cow, medium system farms recorded an average of 400 kg MS per cow while high input farms recorded an average of 444 kg MS per cow. The average milksolids production per hectare in medium input farms (1,090 kg) was 87 kilograms higher than in low input farms (1,003 kg) and 272 kilograms lower than in high input farms (1,275 kg).
Dairy cash income per kilogram of milksolids was highest for high input systems ($9.25) due to milk sales being greater than the other two systems. Low input ($9.20) and medium input systems ($9.23) had similar average dairy cash incomes per kilogram of milksolids. Farm working expenses per kilogram of milksolids were $5.05 for low input systems, $5.50 for medium input systems and $6.09 for high input systems.
Cash operating surplus per kilogram of milksolids was the highest for low input systems ($4.15), followed by medium input systems ($3.71). High input systems recorded the lowest average cash operating surplus of $3.23 per kilogram of milksolids. Operating profit per kilogram of milksolids was highest for medium input systems ($2.72), and lowest for high input systems ($2.20). Low input systems had an operating profit per kilogram of milksolids of $2.69, which was close to that of medium input systems. Operating profit per hectare was highest for medium input systems ($2,972), $277 higher than high input systems ($2,6895) and $523 higher than low input systems ($2,449).
Table 7.4 shows key 2022-23 average financial indicators in the three production system categories. The averages reported in this table are medians; see section 2.11 for an explanation of this methodology. The operating return on dairy assets was highest for medium input farms (5.6%) and lowest for high input farms (4.6%). Once capital and non-dairy operations were included, the average total return on assets was 5.1 percent for low input farms, 4.0 percent for medium input farms and 3.6 percent for high input farms. Low input farms had the smallest debt to asset ratio (40 percent), closely followed by medium input farms (44 percent). High input farms had a debt to asset ratio of 52 percent. Closing term liabilities per kilogram of milksolids was higher for low and medium input systems ($22.29 and 22.28) than for high input systems ($20.95).
All farm system types had positive median growth in equity percentages. Medium and high input systems recorded an average growth in equity of 1.9 and 0.7 percent, respectively. Average growth in equity for low input systems (3.9 percent) more than doubled that of medium and high input systems (Table 7.4).