The Teagasc Dairy Specialist Team launched a Dairy Bill of Quantities tool in November 2024 to help dairy farmers benchmark their inputs and put more focus on the costs of producing milk, Padraig O’Connor tells us more.
Have you ever thought about the number of individual items that are bought each year to keep a dairy farm running? From the big-ticket items like feed and fertiliser, to services paid such as insurance and accountant fees, to the ‘bits and pieces’ picked up in the local merchants on a Saturday morning – fence posts, milk filter socks and the like.
That’s all before bank repayments, labour and depreciation are considered! It adds up to hundreds of individual direct and indirect transactions each year and, when the euros are counted, it also determines a farm’s annual cost of production.
Over the last three to four years, production costs have jumped significantly on dairy farms from around 27 cents to 35 cents per litre. In real terms, this equates to an extra €42,000 in annual costs for the average milk producer, or €813 per week to be covered by the milk cheque.
From analysis of over 1,000 farm Teagasc Profit Monitors each year, however, we also see a consistent and very wide range in milk production costs among farms. Some of this is structural e.g. loan interest, but much of it also comes from routine inputs like feed and machinery costs.
To get to grips with costs it is vital to look not only at the unit cost/price inflation side, but also to examine the input usage levels on a line-by-line basis.
The Dairy Bill of Quantities
In response to the significant cost differences between high margin and low margin dairy farms, the Teagasc Dairy Specialist Team launched a Dairy Bill of Quantities (BoQ) tool in November 2024. This simple tool helps dairy farmers benchmark their inputs and put more focus on the costs of producing milk.
Cost categories are broken down into variable and fixed costs under the same headings as the Teagasc Profit Monitor. The Bill of Quantities itemises the quantity of each input used across the year e.g. tonnes of purchased concentrate, number and type of vaccine shots used, hectares of silage made by contractor, milking parlour detergent used, and electricity kwH consumption etc.
Level of inputs for each item are based on Teagasc best-practice protocols. Annual feed budgets are balanced for stocking rate, annual pasture growth and level of milk solids production.
How can dairy farmers make use of the Bill of Quantities?
It is important to say that the figures generated in the Bill of Quantities (BoQ) are not ‘target’ levels per se, but are a reference point for individual farmers to start looking at their own input costs. Some years will understandably see higher repair costs for example, but the figures generated by the BoQ give a good approximation based on several years.
The first step in utilising the BoQ tool therefore is that dairy farmers compile their own figures for their farm and input them into the Teagasc Profit Monitor system. This can be completed by the farmer’s advisor or the farmer themselves. A number of different reports can then be generated. The Consolidated Dairy Report is one such report and this can be used to benchmark and compare your figures with the BoQ figure on a per cow basis. The BoQ may not be exactly right for your farm but can be used as a guide or an indicator. The comparison can be made on usage units, units per cow and €/cow.
If your figure is higher or lower than the BoQ figure, you can drill down and explore the differences. Is it unit rate or price? The BoQ may also create a good discussion around category costs between you and your advisor or within a discussion group setting. For example, under Breeding and Artificial Insemination (AI), the comparison can be made between using all AI as opposed to using AI at the start of the breeding season and then using a bull to mop up. How much straw is used for bedding? How do contractor charges compare?
Future developments
The BoQ tool will be updated annually in the autumn of each year to reflect the prevailing market price per unit of each item. By and large, the usage units should remain static unless there are policy changes e.g. change with the derogation. This will allow the effect of price changes to be disaggregated from changes to input levels, creating a dairy inputs price index over time. It is also planned to work on other scenarios, where the farmer is contract rearing replacements for example, or for a fully leased farm with 100% paid labour; the same process will help show how these situations impact on overall costs.
Conclusions
The BoQ is a tool that lists all of the inputs and costs for a typical dairy herd run to best practice protocols. It separates the effect of price and usage rates for each input to allow farmers compare their own situation on a per cow or per litre basis.
To make the most of the BoQ, the farmer should have their own figures completed for their farm and then benchmark these figures against the BoQ with the help of their advisor. If there is a large variance, then the farmer and the advisor can do a comparison of the actual inputs the farmer is purchasing against what is required. It should also create a platform for a good discussion in a discussion group setting. For further information contact your local Teagasc advisor.