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Australian dairy Financial performance of dairy farms, 2013–14 to 2015–16 Dale Ashton, Aruni Weragoda, Milly Lubulwa and Walter Shafron

Research by the Australian Bureau of Agricultural and Resource Economics and Sciences

Research report 16.6 August 2016

© Commonwealth of Australia 2016 Ownership of intellectual property rights Unless otherwise noted, copyright (and any other intellectual property rights, if any) in this publication is owned by the Commonwealth of Australia (referred to as the Commonwealth). Creative Commons licence All material in this publication is licensed under a Creative Commons Attribution 3.0 Australia Licence, save for content supplied by third parties, logos and the Commonwealth Coat of Arms.

Creative Commons Attribution 3.0 Australia Licence is a standard form licence agreement that allows you to copy, distribute, transmit and adapt this publication provided you attribute the work. A summary of the licence terms is available from creativecommons.org/licenses/by/3.0/au/deed.en. The full licence terms are available from creativecommons.org/licenses/by/3.0/au/legalcode. Cataloguing data Ashton, D, Weragoda, A, Lubulwa, M & Shafron, W 2016, Australian dairy: financial performance of dairy farms, 2013–14 to 2015–16, ABARES research report 16.6, Canberra, August. CC BY 3.0. ISSN 1447-8358 ISBN 978-1-74323-295-8 ABARES project 43010 Internet Australian dairy: Financial performance of dairy farms, 2013–14 to 2015–16 is available at agriculture.gov.au/abares/publications. Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) Postal address GPO Box 858 Canberra ACT 2601 Switchboard +61 2 6272 3933 Email [email protected] Web agriculture.gov.au/abares Inquiries about the licence and any use of this document should be sent to [email protected]. The Australian Government acting through the Department of Agriculture and Water Resources, represented by the Australian Bureau of Agricultural and Resource Economics and Sciences, has exercised due care and skill in preparing and compiling the information and data in this publication. Notwithstanding, the Department of Agriculture and Water Resources, ABARES, its employees and advisers disclaim all liability, including for negligence and for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying on information or data in this publication to the maximum extent permitted by law. Acknowledgements ABARES relies on the voluntary cooperation of dairy farmers participating in the annual Australian Dairy Industry Survey (ADIS) to provide data used in preparing this report. Without their help, the survey would not be possible. ABARES farm survey staff collected most of the information presented in this report through on-farm interviews with dairy farmers. ADIS is funded by the Department of Agriculture and Water Resources. Authors acknowledge constructive comments from Peter Martin of ABARES.

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Australian dairy: financial performance of dairy farms, 2013–14 to 2015–16 ABARES

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Contents Key points 5

1 Introduction 7

2 Seasonal conditions, milk production and prices 8

3 Farm financial performance 11 Farm cash income 11 Farm business profit 13 Milk production costs 14 Off-farm income 17

4 Dairy farm investment 18 Total dairy farm capital values 18 New farm investment 20 Return on capital 22 Farm debt and equity 22

Appendix A Selected estimates by region 25

Appendix B Survey methods and definitions 34

Glossary 38

References 42

Tables Table 1 Percentage change in milk production between 2014–15 and 2015–16,

Australian dairy farms, by region 9

Table 2 Key financial performance, Australian dairy farms, by region 13

Table 3 Proportion of dairy farms and milk production, by profitability of production 16

Table A1 Selected estimates, dairy farms, Subtropical region 25

Table A2 Selected estimates, dairy farms, Murray region 26

Table A3 Selected estimates, dairy farms, Tasmania region 27

Table A4 Selected estimates, dairy farms, Western Australia region 28

Table A5 Selected estimates, dairy farms, South Australia region 29

Table A6 Selected estimates, dairy farms, Gippsland region 30

Table A7 Selected estimates, dairy farms, Western Victoria region 31


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Table A8 Selected estimates, dairy farms, New South Wales region 32

Table A9 Selected estimates, dairy farms, Australia 33

Figures Figure 1 Seasonal conditions, dairy farms, by region, 2014–15 and 2015–16 8

Figure 2 Average farmgate milk prices, Australia, 2000–01 to 2015–16 10

Figure 3 Farm cash income, Australian dairy farms, 1989–90 to 2015–16 11

Figure 4 Proportion of dairy farms with negative farm business profit, by total farm capital, 1999–2000 to 2014–15 14

Figure 5 Farm business profit and farm business profit plus off-farm income, Australian dairy farms, 1999–2000 to 2014–15 17

Figure 6 Indexes of total capital value and number of dairy farms, 1999–2000 to 2014–15 18

Figure 7 Number of Australian dairy farms, by total capital value, 1999–2000 to 2014–15 19

Figure 8 Total milk production, Australian dairy farms, by total capital value, 1999–2000 to 2014–15 19

Figure 9 Proportion of farms making capital additions, Australian dairy farms, 1999–2000 to 2014–15 20

Figure 10 Net capital additions, Australian dairy farms, 1999–2000 to 2014–15 21

Figure 11 Net capital additions, Australian dairy farms, by total capital, 2000–01 to 2014–15 21

Figure 12 Rate of return, Australian dairy farms, 1999–2000 to 2015–16 22

Figure 13 Total farm debt, Australian dairy farms, 1999–2000 to 2014–15 23

Figure 14 Ratio of interest paid to total cash receipts, Australian dairy farms, 1999–2000 to 2015–16 24

Maps Map 1 Australian dairy regions 7


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Key points Farm financial performance in 2014–15 and 2015–16 • This report presents results from the annual ABARES Australian Dairy Industry Survey,

focusing on estimates of farm financial performance in 2014–15 and 2015–16 at a regional level.

• At the national level, average farm cash income of dairy farms declined from around $156 000 in 2014–15 to an estimated $101 000 in 2015–16 as a result of lower farmgate milk prices and a slight reduction in milk production per farm.

• The average farmgate milk price is estimated to fall in 2015–16 to around 43 cents a litre, following a step-down in milk payments to dairy farmers by major processors, particularly in Victoria, Tasmania, South Australia and southern New South Wales.

• In 2015–16 average farm incomes are estimated to have declined in all dairy regions except Western Australia.

• Total milk production declined in Victoria as dry seasonal conditions reduced milk production per cow, offsetting increases in the number of cows milked.

• Dairy farm incomes in Western Australia are projected to rise by an estimated 10 per cent in 2015–16 because of increased milk production per farm, as a result of higher milk yields per cow and an increase in number of cows milked.

• Farm cash income is projected to fall in all other dairy regions in 2015–16 as a result of lower farmgate milk prices and/or reduced milk production and increases in total cash costs.

• For the three years ending 2015–16 an estimated 78 per cent of dairy farms received a milk price that covered at least the cash costs of production. These farms accounted for 81 per cent of milk production.

• An average 38 per cent of dairy farms received a price for milk that covered all costs of production (including all cash costs, finance costs, depreciation and unpaid labour), while 26 per cent of farms received a price that covered cash costs of production, finance costs and depreciation but excluding labour.

Longer term trends in dairy farm performance • Since deregulation of the dairy industry in 2000, the number of dairy farms in Australia

has fallen by around 47 per cent. This fall has been concentrated among farms with less than $3 million in total capital value (in 2015–16 dollars). The number of farms with more than $3 million in total capital has increased since 2000.

• Total milk production on large dairy farms of more than $8 million in total capital increased by an estimated 1.6 billion litres or 420 per cent between 1999–2000 and 2014–15. Total milk production on farms with between $3 million and $8 million in total capital increased by an estimated 3.2 billion litres (up by 114 per cent) over the same period.

• These increases in milk production were largely a result of investment in new technologies and management practices resulting in increases in the number of cows milked per farm and the volume of milk produced per cow.

• Average dairy farm debt increased from $346 000 in 1999–2000 to $861 500 in 2014–15 in real terms. Increased borrowing by individual farms for land purchases or new on-farm infrastructure and equipment contributed to the increase in average debt. Demand for ongoing working capital also rose with increases in average herd size and the mechanisation and intensification of dairy enterprises.


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• The increase in average debt was also a result of increases in average farm size as smaller farms with lower average debt left the industry and raised the average for remaining farms.


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1 Introduction The Australian dairy industry makes an important contribution to the Australian economy. It accounted for around 9 per cent ($4.72 billion) of the gross value of agricultural production and around 7 per cent ($2.3 billion) of agricultural export income in 2014–15 (ABARES 2016).

The structure of the dairy industry has changed markedly over the past 30 years, driven by a range of factors including changing world dairy product markets, prolonged drought, the discontinuation of regulated sourcing and pricing of drinking milk in 2000, and cessation of support of manufacturing milk prices through the domestic market support scheme (Ashton et al. 2014). Over the past 30 years, the number of dairy farms in Australia has fallen by nearly two-thirds and the total area used for dairying has halved. Much of this decline has occurred since industry deregulation. Despite fewer resources being used for milk production, the restructure of the dairy industry since 2000—including a shift to larger and more efficient operating systems—has promoted a more efficient dairy industry and enabled the gross value of Australian production per farm to grow in real terms.

This report presents detailed estimates of the financial performance of dairy farms from 2014‒15 to 2015‒16 and discusses past farm investments, focusing on the period after deregulation of the dairy industry in 2000. The report also includes analysis of changes in farm performance by farm size (measured as the total value of capital) to highlight historical variations in performance across the dairy industry since 2000–01. Survey results by region (Map 1) are presented in tables at Appendix A. The information presented in this report expands on farm survey results published in ABARES (2015, 2016).

The report draws on data from the annual ABARES Australian Dairy Industry Survey (ADIS) funded by the Department of Agriculture and Water Resources. This survey has been conducted by ABARES and its predecessors since 1978–79. It provides government and industry stakeholders with information and data that are used to monitor changes in the dairy industry and to analyse a range of industry issues. The latest ADIS data were collected between July and November 2015.

Map 1 Australian dairy regions

Source: Dairy Australia


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2 Seasonal conditions, milk production and prices

Seasonal conditions in 2014‒15 and 2015‒16 Seasonal conditions varied widely across the eight dairy regions in 2014–15 and 2015–16 (Figure 1). In most regions, a majority of dairy farmers reported average or above average seasonal conditions in 2014–15 and 2015–16, although most regions also had a number of farmers reporting below average conditions in either or both years.

In New South Wales and Western Australia dairy farmers predominantly reported average to above average seasonal conditions in both 2014–15 and 2015–16. Reported seasonal conditions were generally mixed across the other regions, with large numbers of dairy farmers reporting either average and above average seasonal conditions or below average conditions.

Figure 1 Seasonal conditions, dairy farms, by region, 2014–15 and 2015–16

percentage of farms

Note: Farmers were asked to report prevailing seasonal conditions during the financial year to indicate the combined effects of rainfall, temperature and evapotranspiration. Source: ABARES Australian Dairy Industry Survey

Milk production in 2014‒15 and 2015‒16 Nationally, total milk production increased by 3.8 per cent in 2014–15 to 9.73 billion litres—the highest volume of milk production since 2005–06. In 2015–16 Australian milk production is expected to fall by 1 per cent to an estimated 9.66 billion litres.

Milk production is estimated to have fallen by 1 per cent a farm on average in 2015–16 as a result of lower average milk yields per cow, largely because of poorer seasonal conditions in many dairy regions (Table 1). Falls in average milk production were concentrated in the Murray,


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Gippsland and Western Victoria regions. In Western Australia, both milk yields and the number of cows milked increased, while in Tasmania an increase in number of cows milked was partly offset by lower average milk yields. In South Australia, an increase in average milk yields offset a decline in the number of cows milked, leading to increased production. In New South Wales, milk production increased as a result of an increase in the number of cows milked.

Table 1 Change in milk production between 2014–15 and 2015–16, Australian dairy farms, by region

average per farm Region Cows

milked (%)

Milk yield per cow

(%)

Milk production

(%)

Subtropical 1 –1 0

Murray 8 –10 –3

Tasmania 3 –2 1

Western Australia 2 3 5

South Australia –3 4 1

Gippsland 2 –3 –1

Western Victoria 0 –1 –1

New South Wales 2 0 2

Australia 3 –3 –1 Note: Change of selected variables indicated as a zero in the table are as a result of rounding. Source: ABARES Australian Dairy Industry Survey

Milk prices Farmgate milk prices can fluctuate substantially from year to year—in line with changes in world prices for dairy products and the domestic milk market. Milk prices fell by 5 per cent in 2014–15 to an average of 48.5 cents a litre. The average farmgate milk price is estimated to fall by a further 11 per cent in 2015–16 to around 43 cents a litre (Figure 2) following a step-down in milk payments to dairy farmers by major dairy processors, particularly in Victoria, Tasmania, South Australia and southern New South Wales.


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Figure 2 Average farmgate milk prices, Australia, 2000–01 to 2015–16

p Preliminary estimate. y Provisional estimate. Sources: ABARES; Dairy Australia, web statistics, Melbourne


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3 Farm financial performance Farm cash income Australian dairy farm incomes fluctuate widely from year to year (Figure 3). These fluctuations reflect changes in world prices for traded dairy products, the effects of varying seasonal conditions on milk production and the cost of farm inputs. Farm cash income is a measure of the cash funds generated by a farm business for farm investment and personal consumption after paying all costs incurred in production, including interest payments but excluding depreciation and payments to family labour.

Figure 3 Farm cash income, Australian dairy farms, 1989–90 to 2015–16

average per farm

y Provisional estimate. Source: ABARES Australian Dairy Industry Survey

2014–15 At the national level, total receipts for dairy farms increased by around 3 per cent in 2014–15, on average, because of higher milk production partly offset by a reduction in milk prices. Average total cash costs for Australian dairy farms increased by around 9 per cent in 2014–15, mainly reflecting increased input use because of an increase in the number of cows being milked and drier seasonal conditions that encouraged increased fodder purchases. Fodder expenditure increased by around 11 per cent while relatively small increases were recorded in most other categories of farm cash costs.

The culmination of these factors led to a reduction in average farm cash income in 2014–15. Average farm cash income of dairy farms was estimated to have declined from around $164 400 in 2013–14 to around $156 000 in 2014–15.

2015–16 In 2015–16 milk receipts are estimated to have fallen by around 6 per cent, on average, because of lower farmgate milk prices and a small reduction in milk production. Average total cash costs are estimated to have increased by around 1.5 per cent in 2015–16, despite reductions in


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expenditure on fuel, fertiliser and interest payments. Increased expenditure on fodder occurred in most states because of increases in fodder prices and use in response to dry seasonal conditions.

Farm cash income of dairy farms at the national level is projected to decline further in 2015–16, to an average of around $101 000 a farm. The projected farm cash income of dairy farms in 2015–16 is around 13 per cent below the 10-year average to 2014–15.

In 2015–16 farm cash income is projected to fall in all regions except Western Australia. Reduced milk prices and lower milk production resulted in lower total farm cash receipts. Total cash costs are projected to rise as a result of increased fodder purchases driven by ongoing dry seasonal conditions in many regions. In Western Australia, increased production and subsequent higher cash receipts were partly offset by an increase in total cash costs (Table 2).

Average farm cash income of dairy farms in Tasmania, South Australia and New South Wales is projected to decline despite an increase in milk production. Milk receipts are projected to decrease as a result of lower forecast milk prices offsetting increased milk production. In addition, total cash costs for dairy industry farms are projected to increase because of increased expenditure on fodder purchases. An increase in the farmgate milk price in the Subtropical region is projected to be offset by an increase in total cash costs, leading to a decline in farm cash income. Farm cash income for the Murray and Western Victorian regions is projected to decline, reflecting the effects of lower forecast milk prices, reduced milk production and increased expenditure on fodder. A decline in total cash costs in the Gippsland region is projected to be more than offset by lower milk receipts, leading to a decline in farm cash income.

Detailed financial performance information by region is provided in Appendix A.


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Table 2 Key financial performance, Australian dairy farms, by region

average per farm Farm cash income Units 2013–14 2014–15p 2015–16y

Subtropical $ 67 210 89 900 (20) 87 000

Murray $ 185 950 157 900 (23) 82 000

Tasmania $ 238 130 221 800 (10) 123 000

Western Australia $ 161 260 234 900 (10) 259 000

South Australia $ 162 980 133 500 (26) 79 000

Gippsland $ 166 500 101 200 (27) 75 000

Western Victoria $ 168 620 204 700 (26) 109 000

New South Wales $ 123 790 208 000 (13) 187 000

Australia $ 163 280 156 300 (4) 101 000

Farm business profit a

Subtropical $ –25 300 –8 900 (210) –36 000

Murray $ 74 070 56 400 (60) –33 000

Tasmania $ 123 100 112 700 (24) –14 000

Western Australia $ 70 910 149 400 (20) 107 000

South Australia $ 62 910 –9 000 (410) –50 000

Gippsland $ 68 920 18 700 (120) 24 000

Western Victoria $ 87 480 134 500 (30) –3 000

New South Wales $ 15 150 105 300 (26) 60 000

Australia $ 64 330 64 400 (21) –14 000

Rate of return (excluding capital appreciation) b

Subtropical % 0.6 1.2 (38) 0.3

Murray % 4.8 3.2 (36) 0.4

Tasmania % 4.7 4.1 (14) 2.0

Western Australia % 2.1 2.7 (15) 2.2

South Australia % 3.7 1.7 (47) 0.6

Gippsland % 3.8 2.3 (23) 1.0

Western Victoria % 4.2 4.8 (22) 1.4

New South Wales % 1.9 3.6 (15) 2.5

Australia % 3.6 3.2 (11) 1.2 a Defined as farm cash income plus build-up in trading stocks, less depreciation and the imputed value of owner–manager, partner(s) and family labour. b Rate of return to farm capital at 1 July. Calculated by expressing profit at full equity as a percentage of total opening capital. p Preliminary estimate. y Provisional estimate. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: ABARES Australian Dairy Industry Survey

Farm business profit Farm business profit is a measure of longer term profitability that accounts for capital depreciation, payments to family labour and changes in inventories of livestock, fodder and grain held on-farm.


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At the national level, non-cash allowances for depreciation and family labour were relatively steady between 1999–2000 and 2014–15, at an average of around $80 000 for each farm (in 2015–16 dollars). As a consequence, changes in farm business profit closely reflect changes in farm cash income.

Negative farm business profit means a farm has not covered the costs of unpaid family labour or set aside funds to replace depreciating farm assets. While many farms record negative farm business profits occasionally as their incomes fluctuate, ongoing low or negative profits affect longer term viability because farms have reduced capacity to invest in newer and more efficient technologies. Even in years when farm incomes were high, around one-third of dairy farms recorded a farm business loss; many of these farms were small farms (Figure 4).

Figure 4 Proportion of dairy farms with negative farm business profit, by total farm capital, 1999–2000 to 2014–15

Percentage of farms

p Preliminary estimate. Source: ABARES Australian Dairy Industry Survey

Milk production costs The unit cost of producing milk includes all of the cash input costs such as rates, irrigation water, fuel, fertiliser, accountancy, electricity, dairy supplies, veterinary chemicals, interest payments on debt, leasing payments and rents.

In the short term dairy farms need only to generate sufficient receipts to cover total cash costs to continue to operate without needing to borrow or utilise financial assets to cover cash shortfalls.

In addition, farms need to replace and upgrade farm capital over time (as vehicles, machinery, plant, dairy shed, fencing and other equipment wear out). This cost is mostly captured in net depreciation, although repairs and maintenance included in cash costs also includes the replacement and upgrade of some farm capital. Farms typically vary their expenditure on capital items depending on need and available cash flow.

The value of unpaid labour should also be included in the cost of producing milk to allow the performance of all farm businesses to be compared on an equal basis regardless of the labour


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arrangements in place (including use of unpaid family labour, hired permanent labour or casual labour).

For the three years ending 2015–16 an average 38 per cent of dairy farms received a price for milk that covered all costs of production (including all cash costs, finance costs, depreciation and the value of unpaid labour). These farms accounted for an estimated 47 per cent of total milk production. For a further 26 per cent of farms the price received covered all costs of production including depreciation but excluding unpaid labour—these farms accounted for an estimated 22 per cent of milk production. For an additional 14 per cent of farms (accounting for 12 per cent of production) the milk price received covered only the cash costs of production (including finance costs, but excluding depreciation and unpaid labour). Overall, 78 per cent of dairy farms (and 82 per cent of milk production) received a price that at least covered the cash costs of production.

For around 22 per cent of farms the price received did not cover cash costs of production over the three years ending 2015–16. These farms accounted for an estimated 18 per cent of Australian milk production. These proportions vary substantially from year to year (Table 3).

The largest single production cost for Australian dairy farms over the three years to 2015–16 was purchased fodder (including grain, hay and prepared stock feeds), accounting for an average of 31 per cent of total cash costs. Interest payments—accounting for around 10 per cent of total cash costs—was the second largest cost item over the period.

Australian dairy: financial performance of dairy farm

s, 2013–14 to 2015–16 ABARES

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Table 3 Proportion of dairy farms and milk production, by profitability of production

p Preliminary estimate. y Provisional estimate. Source: ABARES Australian Dairy Industry Survey

Profitability of production Unit Proportion of farms Proportion of production

2013–14 2014–15p 2015–16y 2013–14 2014–15p 2015–16y

Price received exceed all production costs (cash costs, finance costs, depreciation and unpaid labour)

% 42 44 28 55 53 32

Price received covered cash costs of production, including finance costs and depreciation

% 31 27 21 23 23 21

Price received covered only cash costs of production (including finance costs)

% 7 9 24 7 9 21

Price received did not cover cash costs of production (including finance costs)

% 20 20 27 15 15 26


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Off-farm income Many dairy farmers access off-farm income each year. Off-farm income includes wages and salaries, off-farm sharefarming, government assistance to households and returns from non-farm investments. Over the three years to 2014–15 around 74 per cent of dairy farmers had some form of off-farm income. Off-farm income is often used to supplement farm incomes or to help offset low farm profitability.

Some farms may record a cash profit (that is, positive farm cash income) but an economic loss (negative farm business profit) because they are not covering the non-cash costs of family labour and depreciation. For many of these farms, off-farm income offsets farm business losses and contributes to farms remaining in production (Figure 5).

Off-farm income is particularly important for the overall financial situation of small dairy farms (those with total capital value less than $3 million). For many of these small farms, off-farm income completely offsets farm business losses. For example, in 2015–16 an estimated 63 per cent of small farms recorded a farm business loss, but when off-farm income is added to farm business profit that proportion falls to around 52 per cent.

Figure 5 Farm business profit and farm business profit plus off-farm income, Australian dairy farms, 1999–2000 to 2014–15

average per farm



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4 Dairy farm investment Total dairy farm capital values Since 1999–2000 the estimated total capital value of the Australian dairy farming industry has increased by around 25 per cent in real terms, while the number of dairy farms has declined (Figure 6).

Figure 6 Indexes of total capital value and number of dairy farms, 1999–2000 to 2014–15


Increases in the value of land and fixed improvements accounted for most of the increase in total capital value. Higher land prices more than offset reductions in the total area of land operated by dairy farmers. Dairy farm amalgamations have been common in some regions but some of the land previously used for dairy farming is now used for other purposes, including non-dairy agricultural activities and urban development.

Changes in the value of capital invested in the dairy industry have occurred because many dairy farmers have increased the area of land operated and herd sizes, and invested in new plant, machinery and equipment. In 2014–15 capital invested in livestock, plant and equipment accounted for around 25 per cent of the total capital value of the dairy industry. Over the period from 1999–2000 to 2014–15 the total value of plant and equipment tripled (in 2015–16 dollars) and the total value of livestock nearly doubled.

The number of dairy farms in Australia has fallen by around 47 per cent since deregulation of the dairy industry in 2000. Farms with less than $3 million in total capital value (in 2015–16 dollars) accounted for all of the decline in the number of farms. Many of these smaller farms expanded their scale and contributed to overall increases in the number of larger farms with total capital between $3 million and $8 million, particularly in the early 2000s (Figure 7).


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Figure 7 Number of Australian dairy farms, by total capital value, 1999–2000 to 2014–15


From a peak of 11.3 billion litres in 1999–2000, total milk production in Australia declined by around 14 per cent to 9.7 billion litres in 2014–15. This decline was concentrated in farms with less than $3 million in total capital (down by an estimated 5.4 billion litres or 75 per cent from 1999–2000 to 2014–15) (Figure 8).

Total milk production on large dairy farms (those with more than $8 million in total capital) increased by an estimated 1.6 billion litres or 420 per cent. Total milk production on the remaining farms (between $3 million and $8 million in total capital) increased by an estimated 3.1 billion litres (up by 114 per cent) from 1999–2000 to 2014–15. These increases in milk production were largely an outcome of dairy industry investment, resulting in increases in both the number of cows milked and the volume of milk produced per cow. Average milk yields increased as a consequence of investment in technologies and management practices that have contributed to productivity improvements.

Figure 8 Total milk production, Australian dairy farms, by total capital value, 1999–2000 to 2014–15



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New farm investment Dairy farmers’ capacity to generate farm income is influenced by their past investments in land, farm infrastructure, and plant and machinery. Although only a relatively small proportion of farmers buy land in any given year, most farmers make some annual investment in plant, vehicles, machinery and infrastructure. New investment allows farmers to replace capital items that have reached the end of their useful life and to introduce new technologies. Most investments—particularly those in land and fixed on-farm infrastructure—are usually made with longer term outcomes in mind and based on expected returns over the life of the investment. On average, 59 per cent of dairy farms each year made additions to total capital over the 10 years to 2014–15 (Figure 9). Average farm capital investment fluctuated over the period broadly in line with changes in farm incomes (Figure 10).

Figure 9 Proportion of farms making capital additions, Australian dairy farms, 1999–2000 to 2014–15

Percentage of farms



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Figure 10 Net capital additions, Australian dairy farms, 1999–2000 to 2014–15

average per farm


Net capital investment is the difference between total value of plant, vehicles, machinery and farm infrastructure purchased and total value of those items sold. Most expenditure on net capital additions for dairy farms resulted from increases in average scale of operations of farms and intensification of enterprises. New investment on larger and better performing dairy farms has been substantial (Figure 11).

Figure 11 Net capital additions, Australian dairy farms, by total capital, 2000–01 to 2014–15

average per farm



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Return on capital Measures of return on capital are important indicators of the economic performance of farm businesses and the incentives for farmers to continue investing in the industry. Over the period from 2000–01 to 2007–08 the average rate of return for dairy farms was relatively high when capital appreciation is included (Figure 12). During most of the 2000s strong demand for rural land resulted in land values rising in most regions, which increased the total capital value of dairy farms and, consequently, rates of return including capital appreciation. However, reported land values started to decline in a number of regions in 2008–09, resulting in substantially lower average rates of return to total farm capital including capital appreciation.

Figure 12 Rate of return, Australian dairy farms, 1999–2000 to 2015–16

average per farm

p Preliminary estimate. y Provisional estimate. Note: Rate of return including capital appreciation is not available for 2015–16. Source: ABARES Australian Dairy Industry Survey

When capital appreciation is excluded, changes in rates of return to capital have been more modest. Over the 10 years to 2015–16 the average rate of return to capital (excluding capital appreciation) for Australian dairy farms was 2.4 per cent. In 2014–15 the average rate of return (excluding capital appreciation) fell to an estimated 3.2 per cent as farm incomes declined. Average rate of return (excluding capital appreciation) is estimated to have fallen further to 1.2 per cent in 2015–16.

Farm debt and equity Most dairy farms are family owned and operated. For family farms, funding for farm expansion and improvement is limited to the funds available to the family, the profits the farm business can generate and the funds it can borrow. Debt is an important source of funds for farm investment and ongoing working capital.

Average dairy farm debt has increased by around 150 per cent from $346 000 in 1999–2000 to an estimated $861 500 in 2014–15, in real terms. Increases in average debt over the past


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15 years have been largely the consequence of a rapid increase in average farm size. An increase in average debt per farm would probably have occurred as a result of the exit of small farms even without any additional borrowing. Many small farms had little or no debt and their exit raised the average debt of the remaining farms.

In addition, borrowing for land purchase and for on-farm investment and ongoing working capital has increased substantially as average herd size increased and as the mechanisation and intensification of dairy enterprises expanded.

The increase in average debt over time appears large. However, relative to increases in the size of the average dairy herd or relative to the average number of litres of milk produced per farm (a measure of capacity to generate income to service debt), the increases are more modest (Figure 13). Average debt per litre of milk produced increased by 37 per cent between 1999–2000 and 2007–08, in real terms. Since 2007–08 average debt per litre has remained relatively stable.

Figure 13 Total farm debt, Australian dairy farms, 1999–2000 to 2014–15

average per farm


Overall, changes in average debt over time have been modest relative to dairy farmers’ capacity to service debt by generating income. The capacity to service debt—making interest and principal repayments—is an important part of farm viability. On average, around 8 per cent of dairy farm cash receipts were used to make interest payments over the 10 years to 2015–16. This proportion has fallen in years of higher farm receipts and reduced interest rates (Figure 14).

At the national level, the average equity ratio for dairy farms has declined since 2004–05 as debt levels have increased with increased herd size and milk production. The average farm equity ratio of dairy industry farms at 30 June 2015 increased to 80 per cent from 78 per cent at 30 June 2014 and was around 8 per cent lower than in 2004–05. Change in farm equity ratios over time should be considered against the background of the increase in average farm size. Equity ratios are typically lower for larger farms because they are generally able to service larger debts.


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Figure 14 Ratio of interest paid to total cash receipts, Australian dairy farms, 1999–2000 to 2015–16

average per farm



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Appendix A Selected estimates by region Table A1 Selected estimates, dairy farms, Subtropical region

average per farm Physical indicators Unit 2013–14 2014–15p 2015–16y

Area of land operated at 30 June ha 322 492 (38) 1 013

Dairy herd at 30 June no. 292 295 (4) 283

Cows milked for at least 3 months no. 146 146 (4) 147

Milk production L 827 202 839 352 (5) 835 237

Milk production per cow L 5 667 5 750 (3) 5 681

Cash receipts

Total milk receipts $ 448 100 478 700 (5) 473 000

Dairy cattle sales $ 28 900 35 500 (11) 36 000

Beef cattle sales $ 7 380 16 400 (75) 25 000

Crop receipts $ 4 810 8 200 (38) 7 000

Total cash receipts $ 507 480 554 600 (6) 560 000

Cash costs

Dairy cattle purchases $ 4 290 10 200 (36) 6 000

Hired labour $ 32 030 33 900 (15) 33 000

Fertiliser $ 21 580 28 900 (10) 27 000

Fodder $ 163 530 164 900 (9) 184 000

Fuel, oil and lubricants $ 19 000 18 900 (12) 19 000

Electricity $ 19 270 17 500 (8) 18 000

Repairs and maintenance $ 32 730 32 800 (11) 32 000

Interest payments $ 36 070 40 400 (15) 38 000

Total cash costs $ 440 280 464 700 (6) 472 000

Financial performance

Farm cash income $ 67 210 89 900 (20) 87 000

plus build-up in trading stocks $ 13 770 17 600 (68) 360

less depreciation $ 33 580 37 100 (7) 36 000

less owner–manager and family labour $ 72 700 79 300 (8) 88 000

Farm business profit a $ –25 300 –8 900 (210) –36 000

Rate of return b

– excluding capital appreciation % 0.6 1.2 (38) 0.3

– including capital appreciation % 0.4 3.8 (22) na

Farm debt at 30 June c $ 544 880 646 900 (15) 628 000

Equity ratio at 30 June cd % 83 82 (2) na a Defined as farm cash income plus build-up in trading stocks, less depreciation and the imputed value of owner–manager, partner(s) and family labour. b Rate of return to farm capital at 1 July. Calculated by expressing profit at full equity as a percentage of total opening capital. c Average per responding farm. d Equity expressed as a percentage of farm capital. p Preliminary estimate. y Provisional estimate. na Not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: ABARES Australian Dairy Industry Survey


26

Table A2 Selected estimates, dairy farms, Murray region


Area of land operated at 30 June ha 288 322 (13) 319



Milk production L 1 327 170 1 388 778 (6) 1 347 935


Cash receipts




Crop receipts $ 2 130 2300 (106) 0


Cash costs


Hired labour $ 34 690 32 300 (16) 43 000

Fertiliser $ 28 660 22 800 (17) 20 000

Fodder $ 173 210 187 200 (7) 212 000


Electricity $ 17 880 18 100 (12) 19 000



Total cash costs $ 571 890 608 100 (7) 637 000


Farm cash income $ 185 950 157 900 (23) 82 000

plus build-up in trading stocks $ –730 15 400 (63) 7 000



Farm business profit a $ 74 070 56 400 (60) –33 000

Rate of return b






27

Table A3 Selected estimates, dairy farms, Tasmania region







Cash receipts




Crop receipts $ 39 050 45 100 (48) 55 000

Total cash receipts $ 1 115 710 1 162 600 (6) 1 086 000

Cash costs


Hired labour $ 64 300 80 500 (10) 81 000

Fertiliser $ 79 060 85 900 (9) 85 000

Fodder $ 224 340 253 400 (9) 279 000


Electricity $ 40 820 37 400 (10) 40 000



Total cash costs $ 877 580 940 800 (7) 963 000


Farm cash income $ 238 130 221 800 (10) 123 000

plus build-up in trading stocks $ 6 700 25 600 (72) 10 000




Rate of return b



Farm debt at 30 June c $ 1 740 440 1 728 600 (14) 1 851 000



28

Table A4 Selected estimates, dairy farms, Western Australia region







Cash receipts

Total milk receipts $ 880 560 1 033 800 (6) 1 082 000



Crop receipts $ 180 1 300 (53) 2 000

Total cash receipts $ 1 085 070 1 258 300 (6) 1 358 000

Cash costs


Hired labour $ 88 750 110 100 (8) 119 000

Fertiliser $ 73 640 90 300 (13) 95 000

Fodder $ 265 410 304 700 (8) 351 000


Electricity $ 30 320 31 000 (10) 32 000



Total cash costs $ 923 800 1 023 300 (7) 1 100 000


Farm cash income $ 161 260 234 900 (10) 259 000




Farm business profit a $ 70 910 149 400 (20) 107 000

Rate of return b






29

Table A5 Selected estimates, dairy farms, South Australia region







Cash receipts




Crop receipts $ 13 120 4 600 (69) 7 000


Cash costs


Hired labour $ 71 930 74 400 (14) 82 000

Fertiliser $ 38 160 45 600 (14) 46 000

Fodder $ 232 030 239 300 (10) 269 000


Electricity $ 31 980 36 200 (12) 40 000



Total cash costs $ 773 290 808 400 (10) 822 000


Farm cash income $ 162 980 133 500 (26) 79 000

plus build-up in trading stocks $ 26 760 –13 600 (126) 7 000



Farm business profit a $ 62 910 –9 000 (410) –50 000

Rate of return b






30

Table A6 Selected estimates, dairy farms, Gippsland region







Cash receipts



Beef cattle sales $ 370 2 700 (68) 5 000

Crop receipts $ 80 0 (130) 0


Cash costs


Hired labour $ 21 900 36 900 (27) 23 000

Fertiliser $ 37 090 47 500 (19) 47 000

Fodder $ 125 390 143 800 (13) 144 000


Electricity $ 15 650 14 200 (15) 16 000



Total cash costs $ 474 470 540 300 (13) 499 000


Farm cash income $ 166 500 101 200 (27) 75 000





Rate of return b






31

Table A7 Selected estimates, dairy farms, Western Victoria region







Cash receipts



Beef cattle sales $ 1 450 500 (97) 0

Crop receipts $ 4 390 0 ( ) 0


Cash costs


Hired labour $ 33 580 37 200 (32) 44 000

Fertiliser $ 56 280 57 800 (19) 61 000

Fodder $ 167 100 184 800 (15) 215 000


Electricity $ 16 450 16 300 (7) 17 000



Total cash costs $ 579 560 617 500 (8) 650 000


Farm cash income $ 168 620 204 700 (26) 109 000





Rate of return b






32

Table A8 Selected estimates, dairy farms, New South Wales region







Cash receipts




Crop receipts $ 1 310 3 900 (61) 4 000


Cash costs


Hired labour $ 57 880 72 900 (10) 74 000

Fertiliser $ 38 010 37 400 (12) 39 000

Fodder $ 228 670 259 000 (6) 280 000


Electricity $ 29 610 26 700 (8) 28 000



Total cash costs $ 684 970 753 600 (4) 759 000


Farm cash income $ 123 790 208 000 (13) 187 000




Farm business profit a $ 15 150 105 300 (26) 60 000

Rate of return b



Farm debt at 30 June c $ 838 570 925 400 (14) 1 010 000



33

Table A9 Selected estimates, dairy farms, Australia







Cash receipts




Crop receipts $ 5 030 4 700 (33) 5 000


Cash costs


Hired labour $ 37 580 44 300 (9) 45 000

Fertiliser $ 41 230 44 500 (8) 44 000

Fodder $ 171 480 188 600 (5) 209 000


Electricity $ 20 360 19 700 (4) 21 000



Total cash costs $ 581 990 630 600 (4) 640 000


Farm cash income $ 163 280 156 300 (10) 101 000





Rate of return b




Equity ratio at 30 June cd % 78 80 (2) na a Defined as farm cash income plus build-up in trading stocks, less depreciation and the imputed value of owner–manager, partner(s) and family labour. b Rate of return to farm capital at 1 July. Calculated by expressing profit at full equity as a percentage of total opening capital. c Average per responding farm. d equity expressed as a percentage of farm capital. p Preliminary estimate. y Provisional estimate. na Not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate. Source: ABARES Australian Dairy Industry Survey


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Appendix B Survey methods and definitions ABARES has conducted surveys of selected Australian agricultural industries since the 1940s. These surveys provide a broad range of information on the economic performance of farm business units in the rural sector. This comprehensive dataset is used for research and analysis that forms the basis of many publications, briefing material and industry reports. Since 1978–79 ABARES has conducted the annual Australian Dairy Industry Survey (ADIS) to provide a set of data that are collected nationally using a consistent methodology.

Target populations ADIS covers farms that are engaged in dairying. The population list for ADIS is derived from farms that have paid levies based on their milk deliveries. This list is provided to ABARES by Dairy Australia and consists of dairy businesses with their corresponding region and total milk production. The design measure for ADIS is total milk production for each dairy business on the frame.

ABARES surveys target farming establishments that make a significant contribution to the total value of agricultural output (commercial farms). Farms excluded from ABARES surveys will be the smallest units, which in aggregate will contribute less than 2 per cent to the total value of agricultural production for the industries covered by the surveys.

The size of operation variable used in ABARES survey designs is usually ‘estimated value of agricultural operations’ (EVAO). However, in some surveys in recent years other measures of agricultural production have also been used. EVAO is a standardised dollar measure of the level of agricultural output. A definition of EVAO is given in Agricultural industries: financial statistics (ABS 2001). Since 2004‒05 the ABARES survey has included establishments classified as having an EVAO of $40 000 or more. Between 1991‒92 and 2003‒04 the survey included establishments with an EVAO of $22 500 or more. Between 1987‒88 and 1991‒92 the survey included establishments with an EVAO of $20 000 or more. Before 1986‒87 the survey included establishments with an EVAO of $10 000 or more.

Survey design The target population is grouped into strata defined by ABARES region and size of operation. The sample allocation is a compromise between allocating a higher proportion of the sample to strata with high variability in the size variable and an allocation proportional to the population of the stratum.

A large proportion of sample farms is retained from the previous year’s survey. The sample chosen each year maintains a high proportion of the sample between years to accurately measure change while meeting the requirement to introduce new sample farms. New farms are introduced to account for changes in the target population, as well as to reduce the burden on survey respondents.

The sample size for ADIS is around 300 farms.

The main method of collecting data is face-to-face interviews with the owner–manager of the farm business. Detailed physical and financial information is collected on the operations of the farm business during the preceding financial year. Respondents to ADIS are also contacted by telephone in October each year to obtain estimates of projected production and expected


35

receipts and costs for the current financial year. ABARES surveys also allow supplementary questionnaires to be attached to the main survey or to the telephone surveys. These additional questions help address specific industry issues—such as livestock management practices and adoption of new technologies on dairy farms.

Sample weighting ABARES survey estimates are calculated by appropriately weighting the data collected from each sample farm and then using the weighted data to calculate population estimates. The weighting methodology for ADIS uses a model-based approach, with a linear regression model linking the survey variables and the estimation benchmark variables. The details of this method are described in Bardsley and Chambers (1984).

For ADIS, the benchmark variables provided by Dairy Australia are:

• total number of in-scope dairy farms

• total milk production.

Generally, larger farms have smaller weights and smaller farms have larger weights. This reflects the strategy of sampling a higher fraction of larger farms than smaller farms and the relatively lower number of large farms. Large farms have a wider range of variability of key characteristics and account for a much larger proportion of total output.

Reliability of estimates The reliability of the estimates of population characteristics published by ABARES depends on the design of the sample and the accuracy of the measurement of characteristics for the individual sample farms.

Preliminary estimates and projections Estimates for 2013‒14 and all earlier years are final. All data from farmers, including accounting information, have been reconciled; final production and population information from the Australian Bureau of Statistics (ABS) has been included and no further change is expected in these estimates.

The 2014‒15 estimates are preliminary, based on full production and accounting information from farmers. However, editing and addition of sample farms may be undertaken and ABS production and population benchmarks may also change.

The 2015‒16 estimates are projections developed from the data collected through on-farm and telephone interviews from October to December, and from the preliminary estimates. Projection estimates include crop and livestock production, receipts and expenditure up to the date of interview together with expected production, and receipts and expenditure for the remainder of the projection year. Modifications are made to expected receipts and expenditure where significant production and price change has occurred post interview. Projection estimates are necessarily subject to greater uncertainty than preliminary and final estimates.

Preliminary and projection estimates of farm financial performance are produced within a few weeks of the completion of survey collections. However, these may be updated several times at later dates. These subsequent versions will be more accurate because they will be based on upgraded information and slightly more accurate input datasets.


36

Sampling errors Only a subset of farms out of the total number of farms in a particular industry is surveyed. The data collected from each sample farm are weighted to calculate population estimates. Estimates derived from these farms are likely to be different from those that would have been obtained if information had been collected from a census of all farms. Any such differences are called ‘sampling errors’.

The size of the sampling error is influenced by the survey design and the estimation procedures, as well as the sample size and the variability of farms in the population. The larger the sample size, the lower the sampling error is likely to be. Hence, national estimates are likely to have lower sampling errors than industry and state estimates.

To give a guide to the reliability of the survey estimates, standard errors are calculated for all estimates published by ABARES. These estimated errors are expressed as percentages of the survey estimates and termed ‘relative standard errors’.

Calculating confidence intervals using relative standard errors Relative standard errors can be used to calculate ‘confidence intervals’ that give an indication of how close the actual population value is likely to be to the survey estimate.

To obtain the standard error, multiply the relative standard error by the survey estimate and divide by 100. For example, if average total cash receipts are estimated to be $100 000 with a relative standard error of 6 per cent, the standard error for this estimate is $6 000. This is one standard error. Two standard errors equal $12 000.

There is roughly a two-in-three chance that the ‘census value’ (the value that would have been obtained if all farms in the target population had been surveyed) is within one standard error of the survey estimate. This range of one standard error is described as the 66 per cent confidence interval. In this example, there is an approximately two-in-three chance that the census value is between $94 000 and $106 000 ($100 000 plus or minus $6 000).

There is roughly a 19-in-20 chance that the census value is within two standard errors of the survey estimate (the 95 per cent confidence interval). In this example, there is an approximately 19-in-20 chance that the census value lies between $88 000 and $112 000 ($100 000 plus or minus $12 000).

Comparing estimates When comparing estimates between two groups, it is important to recognise that the differences are also subject to sampling error. As a rule of thumb, a conservative estimate of the standard error of the difference can be constructed by adding the squares of the estimated standard errors of the component estimates and taking the square root of the result.

For example, suppose the estimates of total cash receipts were $100 000 in the dairy industry and $125 000 in the sheep industry—a difference of $25 000—and the relative standard error is given as 6 per cent for each estimate. The standard error of the difference can be estimated as:

A 95 per cent confidence interval for the difference is:

$25 000 ± 1.96*$9 605 = ($6 174, $43 826)


37

Hence, if a large number (toward infinity) of different samples are taken, in approximately 95 per cent of them, the difference between these two estimates will lie between $6 174 and $43 826. Also, since zero is not in this confidence interval, it is possible to say that the difference between the estimates is statistically significantly different from zero at the 95 per cent confidence level.


38

Glossary owner–manager The primary decision-maker for the farm business. This person is

usually responsible for day-to-day operation of the farm and may own or have a share in the farm business.

Physical items

beef cattle Cattle kept primarily for the production of meat, irrespective of breed.

dairy cattle Cattle kept or intended mainly for the production of milk or cream.

hired labour Excludes the farm business manager, partner and family labour and work by contractors. Expenditure on contract services appears as a cash cost.

labour Measured in work weeks, as estimated by the owner–manager or manager. It includes all work on the farm by the owner–manager, partners, family, hired permanent and casual workers and sharefarmers but excludes work by contractors.

total area operated Includes all land operated by the farm business, whether owned or rented by the business, but excludes land sharefarmed on another farm.

Financial items

capital The value of farm capital is the value of all the assets used on a farm, including the value of leased items but excluding machinery and equipment either hired or used by contractors. The value of ‘owned’ capital is the value of farm capital excluding the value of leased machinery and equipment.

ABARES uses the owner–manager’s valuation of the farm property. The valuation includes the value of land and fixed improvements used by each farm business in the survey, excluding land sharefarmed off the sample farm. Residences on the farm are included in the valuations.

Livestock are valued at estimated market prices for the land use zones within each state. These values are based on recorded sales and purchases by sample farms.

Before 2001‒02 ABARES maintained an inventory of plant and machinery for each sample farm. Individual items were valued at replacement cost, depreciated for age. Each year the replacement cost was indexed to allow for changes in that cost.

Since 2001‒02 total value of plant and machinery has been based on market valuations provided by the owner–manager for broad categories of capital, such as tractors, vehicles and irrigation plant.

The total value of items purchased or sold during the survey year was added to or subtracted from farm capital at 31 December of the


39

relevant financial year, irrespective of the actual date of purchase or sale.

change in debt Estimated as the difference between debt at 1 July and the following 30 June within the survey year, rather than between debt at 30 June in consecutive years. It is an estimate of the change in indebtedness of a given population of farms during the financial year and is thus unaffected by changes in sample or population between years.

farm business debt Estimated as all debts attributable to the farm business but excluding personal debt, lease financed debt and underwritten loans, including harvest loans. Information is collected at the interview, supplemented by information contained in the farm accounts.

farm liquid assets Assets owned by the farm business that can be readily converted to cash. They include savings bank deposits, interest bearing deposits, debentures and shares. Excluded are items such as real estate, life assurance policies and other farms or businesses.

receipts and costs Receipts for livestock and livestock products sold are determined at the point of sale. Selling charges and charges for transport to the point of sale are included in the costs of sample farms.

Receipts for crops sold during the survey year are gross of deductions made by marketing authorities for freight and selling charges. These deductions are included in farm costs. Receipts for other farm products are determined on a farmgate basis. All cash receipt items are the revenue received in the financial year.

Farm receipts and costs relate to the whole area operated, including areas operated by on-farm sharefarmers. Thus, cash receipts include receipts from the sale of products produced by sharefarmers. If possible, on-farm sharefarmers’ costs are amalgamated with those of the sample farm. Otherwise, the total sum paid to sharefarmers is treated as a cash cost.

Some sample farm businesses engage in off-farm contracting or sharefarming, employing labour and capital equipment also used in normal on-farm activities. Since it is not possible to accurately allocate costs between off-farm and on-farm operations, the income and expenditure attributable to such off-farm operations are included in the receipts and costs of the sample farm business.

total cash costs Payments made by the farm business for materials and services and for permanent and casual hired labour (excluding owner–manager, partner and other family labour). It includes the value of livestock transfers onto the property as well as any lease payments on capital, produce purchased for resale, rent, interest, livestock purchases and payments to sharefarmers. Capital and household expenditures are excluded from total cash costs.


40

Handling and marketing expenses include commission, yard dues and levies for farm produce sold.

Administration costs include accountancy fees, banking and legal expenses, postage, stationery, subscriptions and telephone.

Contracts paid refers to expenditure on contracts such as harvesting. Capital and land development contracts are not included.

Other cash costs include stores and rations, seed purchased, electricity, artificial insemination and herd testing fees, advisory services, motor vehicle expenses, travelling expenses and insurance. While other cash costs may comprise a relatively large proportion of total cash costs, individually the components are relatively small overall and, as such, have not been listed.

total cash receipts Total of revenues received by the farm business during the financial year, including revenues from the sale of livestock, livestock products and crops, plus the value of livestock transfers off a property. It includes revenue received from agistment, royalties, rebates, refunds, plant hire, contracts, sharefarming, insurance claims and compensation, and government assistance payments to the farm business.

Financial performance measures

build-up in trading stocks

The closing value of all changes in the inventories of trading stocks during the financial year. It includes the value of any change in herd or flock size or in stocks of wool, fruit and grains held on the farm. It is negative if inventories are run down.

depreciation of farm improvements, plant and equipment

Estimated by the diminishing value method, based on the replacement cost and age of each item. The rates applied are the standard rates allowed by the Commissioner of Taxation. For items purchased or sold during the financial year, depreciation is assessed as if the transaction had taken place at the midpoint of the year. Calculation of farm business profit does not account for depreciation on items subject to a finance lease because cash costs already include finance lease payments.

farm business equity

The value of capital, less farm business debt, at 30 June. The estimate is based on those sample farms for which complete data on farm debt are available.

farm business profit

Farm cash income plus build-up in trading stocks, less depreciation and the imputed value of the owner–manager, partner(s) and family labour.

farm cash income The difference between total cash receipts and total cash costs.

farm equity ratio Calculated as farm business equity as a percentage of capital at 30 June.


41

imputed labour cost

Payments for owner–manager and family labour may bear little relationship to the actual work input. An estimate of the labour input of the owner–manager, partners and their families is calculated in work weeks and a value is imputed at the relevant Federal Pastoral Industry Award rates.

off-farm income Collected for the owner–manager and spouse only, including income from wages, other businesses, investment, government assistance to the farm household and social welfare payments.

profit at full equity Farm business profit, plus rent, interest and finance lease payments, less depreciation on leased items. It is the return produced by all the resources used in the farm business.

rates of return Calculated by expressing profit at full equity as a percentage of total opening capital. Rate of return represents the ability of the business to generate a return to all capital used by the business, including that which is borrowed or leased. The following rates of return are estimated: rate of return excluding capital appreciation; and rate of return including capital appreciation.


42

References ABARES publications are available online at agriculture.gov.au/abares/publications.

ABARES 2016, Agricultural commodities: March quarter 2016, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

ABARES 2015, Agricultural commodities: December quarter 2015, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

ABS 2001, Agricultural industries, financial statistics, Australia, preliminary, 1999‒2000, cat. no. 7506.0, Australian Bureau of Statistics, Canberra, available at abs.gov.au/ausstats/[email protected]/cat/7506.0.

Ashton, D, Cuevas-Cubria, C, Leith, R & Jackson, T 2014, Productivity in the Australian dairy industry: Pursuing new sources of growth, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

Bardsley, P & Chambers, RL 1984, ‘Multipurpose estimation from unbalanced samples’, Journal of the Royal Statistical Society, Series C (Applied Statistics), vol. 33, pp. 290–9.

Dairy Australia 2015, ‘Cows and farms’, available at dairyaustralia.com.au/Markets-and-statistics/Farm-facts/Cows-and-Farms.aspx.

http://agriculture.gov.au/abares/publications/display?url=http://143.188.17.20/anrdl/DAFFService/display.php?fid=pb_afsr_p9absf20150327_11a.xmlmailto:abs.gov.au/ausstats/[email protected]/cat/7506.0http://www.dairyaustralia.com.au/Markets-and-statistics/Farm-facts/Cows-and-Farms.aspxhttp://www.dairyaustralia.com.au/Markets-and-statistics/Farm-facts/Cows-and-Farms.aspx

Key pointsFarm financial performance in 2014–15 and 2015–16Longer term trends in dairy farm performance

1 Introduction2 Seasonal conditions, milk production and pricesSeasonal conditions in 2014‒15 and 2015‒16Milk production in 2014‒15 and 2015‒16Milk prices

3 Farm financial performanceFarm cash income2014–152015–16

Farm business profitMilk production costsOff-farm income

4 Dairy farm investmentTotal dairy farm capital valuesNew farm investmentReturn on capitalFarm debt and equity

Appendix A Selected estimates by regionAppendix B Survey methods and definitionsTarget populationsSurvey designSample weightingReliability of estimatesPreliminary estimates and projectionsSampling errorsCalculating confidence intervals using relative standard errorsComparing estimates

GlossaryReferences

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