DairyCo

Glossary

Definition of terms in Milkbench⁺ reports

Dairy Gross Margin = total dairy gross output (which includes a deduction for herd replacement costs) - total variable costs.

Dairy Gross Output =  income from milk sold ⁺ value of milk consumed on farm ⁺ income from sold calves (under 20 days) ⁺ value of calves transferred out of the dairy enterprise (at 20 days) ⁺ net value of quota leases ⁺ other dairy income - herd replacement cost.

Dairy Net Margin = total dairy gross output - total variable costs - total fixed costs.

The dairy net margin represents the return to the farmer as the self-employed manager of the dairy enterprise and income for future investment in the business.

Depreciation

The depreciation rules in Milkbench⁺ are as follows:

Dairy machinery and equipment is valued at its second-hand value (ie, depreciated value) and depreciation is charged at 15% of that valuation.  In a similar manner depreciation of forage machinery and equipment is charged at 20% of its second-hand valuation.  Tractors used for dairy tasks and the dairy share of forage tasks are included in this valuation.  The Special Study, on the other hand, valued tractor costs on the basis of hour-pass factors.

Buildings depreciation is charged at an annual flat rate of 5% of current rebuilding costs. 

Fixed Costs are the sum of all labour costs (casual labour and the imputed cost of unpaid labour), power and machinery costs, depreciation on machinery and buildings, property costs and finance (including imputed net field rent and finance costs) and overhead costs, each itemised in the dairy enterprise report.

Herd Replacement Cost = (number of outgoing dairy cows x average value of incoming heifers that year) - income made from cow sales, culls and sales of adult dairy bulls and disease compensation on dairy animals if applicable.

Imputed Costs

Milkbench⁺ does not require the disclosure of personal drawings, finance charges or actual rent paid.  However, these costs need to be imputed across farms to arrive at a total cost of milk production or a true net margin figure.  This approach allows a fair comparison of efficiency in milk production across farms, whether they are owned or rented, whether funds were borrowed for investment or came from savings, or whether labour is family or employed labour.

These imputed costs are calculated as follows:

• Farmer or other unpaid labour engaged in dairy tasks or forage tasks for the dairy herd: the number of hours worked by this type of labour is valued according to whether it was full time, part time, relief or casual.  The hourly rate of pay used is the rate which that farm pays employed full time, part time, relief or casual labour, or the regional average for that type of work in agriculture (the source for this average is the Annual Survey of Hours and Earnings, ONS).
• Finance charges are calculated as a rate of interest on the second hand valuation of dairy and forage machinery, the herd valuation and the value of quota owned.  This rate of interest is the average of high street lending rates and the return on 5-year government bonds (representing a medium term secure investment).  This is different from the approach to finance in the Special Studies in which only the costs of holding quota were taken into account.
• Net field rent is the rent on the land used for the production of feed and forage for the dairy herd (not the total farm area).  The rate of rent per hectare is that for grazing land in that area as given by the farmer or the best regional average for that year.

Total Dairy Variable Costs are the sum of feed and forage costs and livestock costs and they are itemised in the dairy enterprise report.

The Total Cost of Milk Production = total variable costs ⁺ total fixed costs ⁺ herd replacement cost.