End of quotas will allow dairy farm start-ups

START-UP dairy farms will become much more feasible when milk quotas go, the big attendance at Moorepark ‘07 was told.

Teagasc revealed their financial evaluations of stand-alone dairy farms on green-field sites to the estimated open day attendance of 10,000.

They looked at prospects for farms of 100 hectares and 200 hectares, with capacities for 250 and 500 cows, respectively, over 15 years, with all capital investment depreciated to zero over that period.

It was also assumed no equity was employed; instead, the initial investment was fully financed over the period, totalling €1.83m for the 500-cow unit and €1.1m for the 250-cow unit. These sums were assumed to cover all stock and facilities required, including a contingency fund of €50,000.

Other figures in the simulation were 21.3 cent per litre for milk, €200 for concentrate feed, a €400 per hectare opportunity cost of land (profitability if it wasn’t used for dairying), a €300 cull cow value, and a 6% interest rate. It was assumed milk quotas were no longer binding for farmers. All labour was assumed to be hired, costing €50,000 per year for a farm manager, and including 14 hours, per cow, per year, for a 500-cow unit, 15 for 250 cows.

Laurence Shalloo, Shane O’Donnell and Brendan Horan, of the Teagasc Moorepark Dairy Production Research Centre, presented the findings.

For the 500-cow unit, profit totalled €3,582,318, and cash flow totalled €2,685,953 over 15 years (neither discounted for inflation). For the 250-cow unit, profit and cash figures of €1,071,476 and €603,072, respectively, were projected.

But repayment flexibility would be required to get the farms over three financially difficult early years for the bigger farm, and six years for the 250-cow unit.

For the bigger unit, profit and cash flow were expected to respectively return 13% and 10% per year on the investment (not including an estimated €900,000 value of livestock on the farm at the end of the 15 year assessment, which would boost returns to 16% and 13%). Returns of 6.4% and 3.5% were estimated for the smaller unit. Both units would have to be developed around low-cost housing and maximised grass in the cow diet.