Planning is the Key for Young Farmers
By Carlene Dowie, Dairyfarmer, July/August 2004
Planning and seeking a wide range of information from different sources are the foundation on which young south-western Victorian dairyfarmers Alistair Adams and Andrea Beckel hope to build their dairy enterprise.
The couple, along with Alistair’s parents Anne and Graham Adams, are also grappling with the issue of succession planning, and working out how they can put their own mark on the family dairy farm.
Alistair and Andrea have a share-farming arrangement with Anne and Graham and are in the process of buying the dairy herd. They have used a variety of planning tools to work out what they want to do with the farm in coming years.
One of those is the Red Sky computer benchmarking program, which has allowed them to look at the farm’s performance in the past five years and to compare it with other farms in the district. It has also allowed them to plan profitable strategies.
“We had been searching for years for something that would five us good consistent analysis of our figures quickly,” Alistair said. This allows financial planning to be done more frequently. The historical data was also useful to show where the farm had been and what had been successful, he said.
Anne said Red Sky provided a testing tool for any management decision to ensure that it was moving the business in the right direction.
As a result of the reduction in the available farming area (due to some of the succession planning decisions), a decision to buy the herd and then the Red Sky analysis, Alistair and Andrea have decided to reduce the herd size from 750 cows to 600 cows. The effective milking area will also be reduced from 314 hectares to 288 hectares for t he spring-calving herd.
The plan is to “do it better” with the 600-cow herd being easier for the couple to manage themselves. Alistair said although the 55-unit rotary dairy could handle the larger herd, it had been originally built withy a 350-cow herd in mind. As a result the yards and tracks were not really suitable for the larger herd and put more stress on the system.
They also plan to produce more per cow using bought-in feed. They aim to lift mild solids produced per cow from about 372 kilograms in 2002-03 to 430 kilograms in 2004-05, the same as Red Sky’s benchmark figure for the top 40% of farms in the south-west. To do this they have increased the amount of grain fed from about 750 kilograms per cow to 1.2 tonnes per cow.
They are also planning to reduce the total operating expenses as a percentage of gross revenue. In 2002-03 this was 81.9% and last season was 78%. For 2003-04 they are aiming to reduce this to 71.1%, but it is still significantly higher than the average for Red Sky’s top 40% of farms in the south-west, which is 57.3%.
Alistair said at the moment the farm was in the top 50% for south-west Victoria, but they wanted to be in the top 10%. Andrea said Red Sky focused on profitability – it was not about per cow production, but how much it costs to produce per kilogram of milk solids and profits that were being made per kilogram of milk solids. The program had revealed that “we can do a lot better”, she said.
Alistair said the program showed pasture consumption was one of the main indicators of profit, so increased pasture utilisation and maintaining stocking rate were important.
Anne said the program showed them that they could milk fewer cows and use less land but still be profitable. A 600-cow herd will also allow them to reduce the amount of labour that they use. Alistair said with the larger herd, every problem seem to be magnified.
They have reduced the labour units by one and now have two full-time staff – one trainee and one machinery person, as well as a relief milker doing a few milkings a week. They also use contracted labour for jobs such as fodder conservation, pasture renovation and spraying. They have just moved away form using a fertiliser contractor and plan to do this themselves.
Alistair said capital was also an important issue for their operation. He said running a large dairy herd was still not a proven system – in many ways it was still a new industry. This meant that people were still working out what they needed to run this type of system. “The capital required is huge, so the risk is huge. When people take falls, they take big falls,” he said.
Alistair and Andrea emphasise the importance of planning in their business. They hold regular operational meetings before major farm events, for example, pre-calving and involve outside advisers, consultants and contractors, such as the local vet, to ensure that they are on track for these. They also hold regular breakfast meetings with their staff and use a wall planner to show the annual plan for the farm.
Alistair said annual planning was an important tool for the farm. They also have an eye to the future and are considering other options including diversifying into horticulture or the hospitality industry, given their proximity to the Great Ocean Road and the tourists it attract. They are also planting 3000 trees a year.
The increase in land prices in the district (which have been in line with metropolitan property prices) makes expansion a difficult prospect. It also puts pressure on the return on asset line in the balance sheet, with the value of their asset increasing.
Alistair and Andrea also take advantage of a wide range of information sources and try to get ideas from as many areas as possible. Besides using dairy-specific resources such as the Department of Primary Industries, dairy research and vets, they also look for information in the other business areas.
Alistair said time spent planning and thinking about the business could not be underestimated. “The thing that would help a lot of people . . . would be to write down what they are going to do,” he said.
He said his neighbours probably thought they spent a lot of time talking and not out on the farm. But he said he read somewhere about farmers needing to work on the business, not just in the business, and not just worrying about the business.
A lot of the adjustment occurred in the dairy industry in the 1970s and 1980s. “We’re primed and ready to take advantage of average pricing if we keep debt under control,” he said.
The Adams family is also grappling with succession planning with Alistair and Andrea gradually taking over management from Anne and Graham.
Part of this has been difficult discussions about the assets and working out fair arrangement for two other sons who are not on the farm. To this end, Anne and Graham are planning to run a small beef enterprise that will help provide assets that can be sold and provide for the other sons.
The change form one generation to the next has also seen a “clash” of management styles. “There’s a change in management as a result of succession planning. Graham and I grew a business, Alistair and Andrea are taking that business over,” Anne said.
“But they are bringing a different management style because their training has been different and that management style is around drawing information for a number of different sources.”
Anne said a big change was that in the past dairyfarmer could succeed by being a good technical operator. But now small business operators needed to be a good entrepreneur, technical operation and manager or ensure those skills were included in their team.
“I think in the past, farmers were technical and strategic, but they didn’t want to get into the management type things – the analysis, handling labour . . . and I think for a lot of people, the barrier to herd growth is the number of cows a family can handle with a bit of part-time help form a partner,” she said.
“That has a lot of impact on dairyfarmer lifestyle. When you can push the cow numbers up a bit and be confident handling people, then you get the lifestyle benefits.”