Challenges and Trends in the Dairy Industry
Milk is big business in Ontario as it is the largest sector of agriculture with $1.7 billion in milk receipts making up 20% of the provinces agricultural production. Ontario currently has 4,200 producers with the average herd size close to 76 cows. These producers spent just over $1.5 billion last year in their local communities which magnifies the importance of the industry.
The dairy sector like many commodities is going through some major changes. The question many producers are asking is - what must I do to stay competitive in the industry? At present the majority of new barns being constructed in Huron and Perth Counties are free stalls with capacity to house and milk over 100 cows. The trend is very obvious - larger herds and fewer farms! However, this does not necessarily mean the "downfall" of smaller family farms. Producers who are making a long term commitment to the industry should be aware of the four major factors that can influence survival and profitability:
The secret for success is to focus on all of the factors that affect profit and strive towards the balanced approach, including quality of life style.
Profit in its simplest form can be defined as (price - cost of production) x volume. This formula can be used as a tool to help evaluate the FINANCIAL HEALTH and FUTURE DIRECTION of a dairy operation.
What makes some farms more profitable?
As we near the turn of the century, many challenges and uncertainties face producers:
When reviewing personal, financial and production goals, producers should always be reminded of future challenges facing the industry.
Because of the large capital investment required in the dairy industry today, it is important to be a good money manager. Use capital wisely by analyzing all major changes to a business and only make changes based on realistic cashflow projections. Apply the sensitivity rule - can your farm handle a 5% drop in revenue and a 5% rise in expenses? Debt is not necessarily bad, but make sure its manageable.
In summary, the dairy industry is highly productive, very efficient and a large part of the economy. I believe producers who are willing to adapt to change have good reason to be optimistic about their future.Last Reviewed: June 2010
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