How to shift the dial on farm costs

• Published date: 23 January 2023
• Publication title: Bush Telegraph

As costs climb ever upward, the Smits are applying their learnings from previous peaks and troughs at a time when many farmers are struggling to maintain profitability

Farmers involved in DairyNZ’s Budget Case Study project, which includes the Smits, have experienced an average increase in operating expenses over the past two years of an eye-watering 23per cent, up from $4.34/kgMS to $5.35/kgMS.

That $1.01/kgMS jump in costs has been covered by the rise in gross farm revenue of $1.26/kgMS, most of this being needed to pay for the higher interest rates and living expenses.

The Smits have stuck to a “keep it simple” approach. At its core, and playing a key part in holding costs down, is the mantra to “grow more grass and turn it into milk”, capitalising on what will always be the lowest-cost feed source at hand.

“We do use some supplement, about 100t of PKE [175kg/cow/pa] over summer to help keep condition on cows when they stop eating as much grass over the hottest days, but that’s as far as it goes, and we’re working on a System 2 approach,” says Donna.

That ability to maximise the cheapest feed possible has been aided by committing to the highest-quality farm they could afford. The free-draining flats around Edgecumbe weren’t the cheapest when they purchased their farm, but they’re capable of generating quality grass.

“We first had a property at Otakiri, nearer Kawerau, but it was too dry, and another property below sea level that was on a flood plain,” she says.

“There are lots of ways to maximise your profit — ours was to buy a quality asset to grow good grass on. You make more profit from day one, which means you can pay off debt earlier and then you’re ahead.”

Today, the property they’ve added to 14 times is “tidy but not highly automated”, reflecting their simple approach, she says.

Growing plenty of grass has enabled them to hold their farm working expenses (this excludes unpaid family labour and depreciation, which are operating expenses) at about $2.90/kgMS over the past few years, pushed up to $3.50/kg MS for the past year.

“But this was largely our decision, opting to take advantage of the higher payout and spend some more on repairs and maintenance than we usually would,” Donna says.

Winding costs back

Their ability to adjust to rising farm costs stems from their second principle: to keep costs as variable as possible, rather than be lumbered with ongoing, fixed costs.

The “keep it simple” approach fits well with this. There are no major...