The rising cost of meeting industry standards on Owl Farm

Costs are on the up on Owl Farm, the demonstration farm owned by St Peter’s Cambridge and run as a joint venture with Lincoln University. However, actively planning for the future, and making sure any plans tie in firmly with the goals outlined in their “wagon wheel” framework, are both ensuring that they maintain their profitability in an ever-changing industry.

The “wagon wheel” is core to planning and monitoring on Owl Farm. It is a simple tool for visualising the farm’s KPIs in different areas and allows the team to focus on those they have identified as core to their business. Their vision is to demonstrate excellence in farm performance while creating a sustainable future. Profitability is fundamental to staying in business, but, equally, taking care of their animals and the environment, providing a quality workplace, and meeting community expectations, are also central to the way they operate and have an impact on their decision-making process.

A recent analysis of their current and future business costs has given the team a good feel for how they are progressing, and the impact of their plans on Owl Farm’s future profitability. They use DairyBase as a benchmarking tool and the 2020/21 analysis showed Owl Farm’s farm working expenses (FWE) were $4.60/kgMS – the top 20% Waikato farmers’ (based on operating profit) was $4.62/kgMS,. They produced 1228 kgMS/ha and 440 kgMS/cow.

Their 2021/22 budget provides an in-depth breakdown of where they are investing their funds and the outcomes they aim to achieve in each of the key areas identified in their wagon wheel. They have divided their goals up into categories, each with an attendant impact on their cost of production.

The first category, Baseline, encompasses the costs of running a well-managed, compliant business in an effective and efficient way, with the main emphasis on achieving profitability, without focussing on environmental or animal wellbeing outcomes. It includes the costs of, for example, purchasing the supplements needed to achieve production targets, and meeting basic fertiliser, cropping and regrassing requirements. When well managed under this system, the business is predicted to produce 175,000 kgMS at a cost of $4.09/kgMS.

The next category, Rising Input Costs, takes into account the impact of increasing costs, including inflation. This season increasing costs are likely to have a larger impact than in a typical year, and look set to add an extra $33,300 of costs to the budget ($0.19/kgMS). The main areas affected are: labour costs, supplement and fertiliser prices, and fuel and freight costs.

The third category, Increasing Industry Standards, is where Owl Farm is meeting the wagon wheel KPIs, cementing their licence to operate and remain profitable in the more stringent regulatory times ahead of them. Jo Sheridan, Owl Farm’s demonstration manager, is keen to encourage farmers to take a proactive look at this area on their farm, “There is anxiety in the industry about what regulations will mean for the viability of farm businesses,” she says, “but we feel that as long as farmers prepare early there is scope to still operate profitably and room for optimism about the future.”

Investment to meet increasing industry standards will be an ongoing cost for the farm, but they are looking for a win:win situation, where the strategies they implement will also provide financial benefits. Included in this category are: investing in promoting clover growth with a resultant decrease in nitrogen inputs; using sexed semen and offsetting the cost by reducing the replacements reared and selling excess stock; using chicory and supplements to feed calves optimally so they meet target liveweight gains which has the knock-on effect of meeting reproductive and production targets and decreasing replacement numbers, and also decreasing the farm’s environmental footprint; and staffing and technology investments to achieve a 45 hour week and meet Workplace 360 goals which will reduce recruitment and animal health costs. The changes in this category are budgeted to cost about $117,030 ($0.67/kgMS).

It is expected that many of the strategies which are included in this category, and their costs, will become part of business as usual for Owl Farm which is why they have focussed on debt reduction and improving business resilience. They have updated their long term FWE target ($4.60/kgMS) to reflect the rising cost of meeting industry standards and are driven to ensure the farm continues to deliver across all its financial metrics.

The fourth, and final, category is Futureproofing. The strategies included here may not have associated benefits in cost reduction or increased profitability, but are considered to be part of meeting the wagon wheel KPIs and fulfilling the farm’s demonstration role. As Tom Buckley, Owl Farm’s farm manager notes, “Owl Farm is responsible for showcasing our great industry and providing leadership”. This year’s excellent payout is allowing the team to tackle some of their discretionary farm goals without jeopardising the business’s financial health, and these strategies include investing in: cow wearable technology for improved cow efficiency, introducing plantain into pasture swards, and planting ecologically diverse areas and trees for shade. This category of strategies is budgeted to cost $46,700 ($0.27/kgMS).

Drilling down into the costs in this amount of detail has given the Owl Farm team the ability to move forward confidently into the future and is a worthwhile exercise for all farmers to undertake. More information about each of the strategies and their outcomes, which will be regularly updated, can be found on the farm’s new website: www.owlfarm.nz, and through attending Farm Focus Days; the next ones are on the 16th and 17th December (registration essential).

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