Milk price rise offsets steep production cost increases on dairy farms in 2022

The preliminary results of the National Farm Survey (NFS) for 2022, which are representative of almost 85,806 farms in Ireland, were published earlier today, June 12th. In this article, we look at dairy Family Farm Income.

There were 15,319 dairy farms represented in the NFS in 2022, with an average Family Farm Income (FFI) of €150,884, a 53% increase year-on-year. The increase in FFI was driven by a sharp rise in the milk price (to 60c/L actual fat and protein), which more than offset the steep increase in production costs, due to higher prices for feed, fertiliser and fuel in particular.

Figure 1 shows developments in monthly milk deliveries from 2020 to 2022. Overall, Irish milk production increased slightly (+0.7%) in 2022, with stronger growth evident in the second half of the year.

Figure 1: Irish milk production 2020 – 2022

The components of dairy FFI on the average farm in 2022 are shown in Table 1. Gross output in 2022 typically increased by 39% relative to 2021. On average, there was a 32% increase in total production costs on dairy farms in 2022 compared to the previous year. Direct costs increased by 35% in 2022, with higher volumes of feed use and higher feed and fertiliser prices.

Table 1: Components of average dairy FFI 2022

On an average dairy farm, with a herd size of 93 cows, purchased concentrate expenditure totalled €63,564 in 2022, a 39% increase relative to 2021. Feed volumes averaged 1,210kg per dairy cow in 2022 and have generally been trending upwards since the milk quota was abolished in 2015. In 2022, in periods where grass availability may have been limited, additional feed may have been used in place of grass to maintain milk yields, particularly given the high milk price available. Feed use per cow on individual farms may differ considerably from the average level due to specific factors, such as location, land type and stocking rate.

Figure 2 demonstrates the variation in concentrate feed use per cow across stocking rate bands in 2021 and 2022. Even when farms are grouped on this basis, the wide variation in feed use is evident in the tail values. When comparing feed use over the two year period, a reduction is evident across the lower stocked farms in particular, with usage increasing on more highly stocked farms in 2022. A median value for feed use (represented by the horizontal line in the green box) of 999kg per cow was reported for the 0-1.5LU stocking rate group in 2022. The equivalent figure for the 1.5-2LU cohort was 1,067kg per cow. The median feed use per cow amongst the more intensive producers (with a stocking rate above 2LU) was 1,207kg in 2022.

Figure 2: Distribution of concentrate feed use per cow by stocking rate band 2021 and 2022

Direct costs

Expenditure on purchased bulky feed increased by 28% (to €6,375) on average in 2022. Fertiliser expenditure increased year-on-year, up 107% to €31,384 on average in 2022. Given the increase in fertiliser prices, a larger rise in expenditure on bulky feed could have occurred in 2022, however data from the survey confirms that the volume of fertiliser used on dairy farms on average in 2022 decreased by 5% relative to 2021. This decrease was much smaller than on other systems. Machinery hire (contracting) expenditure increased by 20% on average to €15,784, with other livestock and veterinary costs up slightly (by 3%) to €14,596 for the average dairy farm. Other direct costs also increased in 2022 on the average dairy farm, up 21% to €13,411.

Overhead costs

In line with the general rise in inflation, average overhead costs also increased substantially on dairy farms in 2022. This was largely driven by a 54% increase in buildings depreciation (to €16,968), an increase in the cost of hired labour (up 13% to €7,112 on average across all farms) and increased expenditure on fuel (up 49% to €6,345). Car, electricity and phone related expenditure also increased to €10,743 (up 21%). Increased expenditure relating to building maintenance is also evident, up 39% to €3,930 in the face of rising building costs. Machinery depreciation also increased by 49% to €19,730, on average. Machinery operating costs also increased on average by 18% to €13,217; with land improvement maintenance also up by 22% to €3,414. Increases in spending relating to rent of conacre and on hired labour also occurred, with other overhead costs also increasing by 11% to €8,137.

Table 2 presents some key indicators for dairy farms in 2022. On a per hectare basis, average milk production decreased by 1% year-on-year to 12,019L. Given the elevated milk price, gross output per hectare increased significantly in 2022, to €7,218 on average. However, the increase in direct costs was also substantial, up 34% compared to the previous year. Overall, this resulted in the average dairy gross margin per hectare increasing to €4,808 in 2022.

Table 2: Average dairy farm indicators 2022

Figure 3 illustrates the distribution of dairy farm income in 2022, reflecting the year-on-year improvement across farms, and the rise in the proportion of farms moving to the higher income categories in recent years.

In 2022, 78% of dairy farms reported an FFI above €70,000, up 17 percentage points on the 2021 level. Of these, 62% earned more than €100,000, up 22 percentage points year-on-year.

At the opposite end of the scale, 5% of dairy farms in 2022 reported an average FFI of less than €30,000, with 8% earning between €30,000 and €50,000 and 9% earning between €50,000 and €70,000.

Figure 3: Dairy FFI distribution 2020 – 2022

Taking account of farm scale and intensity, Figure 4 illustrates average dairy FFI in 2022 by farm size class, highlighting the wide variation in FFI for larger farms (above 100ha in particular).

Figure 4: Distribution of dairy FFI by farm size 2022

In 2022, approximately 41% of dairy farms belonged to the 50-100ha size category, with a further 27% in the 30-50ha bracket. Smaller farms represented 10% of the dairy farm population, with the remaining 22% sized above 100ha.

Regional dairy analysis 2022

Dairy farm structures vary by region. These generally dictate the circumstances and constraints under which farms operate. Teagasc NFS data for 2022 are disaggregated here by NUTS II region to examine inherent differences. The counties within each region are illustrated in Figure 5.

Figure 5: Irish NUTS II regions

In terms of the proportion of dairy farms in each region, the vast majority (72%) are located in the South, which would be considered a traditional dairy area. The remainder are evenly spread across the other two regions, with 14% located in the North and West and 14% in the East and Midlands, where notable dairy expansion has been occurring since the abolition of EU milk quota in 2015.

Table 3 provides an overview of farm characteristics by region in 2022. On average, dairy farms in the East and Midlands region are larger, both in terms of land area and herd size. Dairy farms located in the South are closer to the average in terms of these metrics. This is unsurprising given the proportion of dairy farms located in the South.

Table 3: Regional average Dairy Farm Structures 2022

The difference in structure is also reflected in the hired labour cost component across regions, with expenditure on hired labour generally higher in the East and Midlands region. FFI adjusted for the unpaid (family) labour component results in an average dairy FFI in the South of €111,859, €143,546 in the East and Midlands and €86,901 in the North and West. Farm related debt is also substantially higher in the East and Midlands region compared to the South, and the North and West, on average.

Figure 6 details on-farm investment on the average dairy farm across the regions in 2022. The data illustrates the relatively higher investment figure in the East and Midlands. Across regions, machinery purchase related to the majority of on-farm investment in 2022, although building investment was almost proportionate in the North and West, on average. Average spending on land improvement ranged from between approximately €2,000 and €5,000 across the regions, highest in the East and Midlands region.

Figure 6: Average dairy investment by region 2022

On a per hectare basis, in 2022, dairy FFI was highest in the East and Midlands at €2,483. The comparative figures for the South and North and West were €2,326 and €2,144 respectively. Direct costs per cow were highest in the North and West at €1,623 and lowest in the South at €1,441. Concentrate feed use was on average, 1,532kg per cow in the North and West in 2022, compared to 1,351kg per cow and 1,107kg per cow in the East and Midlands and South respectively. When average FFI per cow in 2022 is compared, farms in the East and Midlands reported the highest figure at €1,676, with the comparative figure in the South €1,649 and €1,622 in the North and West.

Table 4: Regional average dairy farm indicators 2022

This article was taken from the Teagasc National Farm Survey 2022, access the full publication here.

Also read: Increase in farm incomes largely confined to dairy and tillage farms in 2022