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Sheep Matters_Aug-Sept 17 (redesigned)

Sample copy of new publication aimed at the progressive farmer and professional in the UK sheep industry. For further information and to register your interest go to www.sheepmatters.co.uk

Getting to grips with

Getting to grips with costs Working out your profitability Prices are important. After all it is the pay cheque at the end of the day that counts – or is it? It is good to know how much you got paid for your last consignment of lambs that you sold deadweight, or what the price per kilo was at the auction mart. And, you can use your knowledge of current markets and longer-term trends in prices to help you make decisions about when, how, where and what to sell. But in reality you have no influence over what those prices will be. BREXIT will add further uncertainty to your farm business - What will be the impact on the value of land? When will we know more about the level of support payments farmers can expect in the long term? Again, these are factors over which you have no control. ‘Production costs are under your influence and controlling these is likely to have a significant impact on your bottom line’ If you are serious about improving the profitability of your business then you need to get to grips with understanding your production costs and knowing whether they are competitive and how your business performs before taking account of direct payments. Over the next few issues we will explore how understanding and managing costs can help you to make better informed decisions about whether to take a certain course of action or not. This will help you decide on how or when to innovate and introduce new techniques on the farm which will add to your competitive position. These may include decisions around whether to switch from traditional to rotational grazing, whether to out-source faecal egg counting or train yourself up to do it in-house, whether to pay for post-mortem examinations to better understand the health status of your flock, when to stop creep feeding, and when to sell pets, whether to worm the whole flock or selected individuals for example. Identifying and measuring costs allows different interventions to be compared and also allows them to be weighed against the benefits or returns of a particular action. This gives an un-biased and informed basis upon which to make decisions. We will look at costs that quickly come to mind such as veterinary, medicine and feed expenditures as well as delving deeper into the hidden, or, sometimes ignored costs like labour, lost opportunity and consequential costs. 6 AUGUST & SEPTEMBER 2017

Cost Benefit Analysis (CBA) - to flush or not to flush? The value of knowing your costs to inform production/ management decisions is demonstrated in the example below which explores the efficacy of flushing ewes in the run up to mating. This CBA is derived from a project in New Zealand that assessed the effect of flushing on lamb production from Romney and Finn/Romney cross ewes (1). The analysis has been updated to include current UK prices (2). While the example is a useful demonstration of how a CBA can inform production decisions, it should be noted that the research was conducted in New Zealand and may not be directly transferable to the UK situation. It is also important to remember that different breeds will respond differently to flushing. INPUT UNIT COST (£) COST/EWE/DAY (£) Barley (150g/day) 125/tonne 0.019 Silage (130g/day) 105/tonne DM 0.014 Total 0.033 over 35 day flushing (0.0.33 x 35) £ 1.16/ewe For a 1000 ewes Feed £ 1160.00 Labour (@ 35 hrs) 10.35/hr £ 724.50 TOTAL COSTS £ 1884.50 When we think about costs it is important to take into account both fixed costs and variable costs. Fixed costs are those which we pay whether we are working or not (e.g. rent, utilities, insurance). Variable costs are those that depend on what is being produced (e.g. labour, feed and forage, transport, medicines) and are often much harder to pin down so get ignored! Over the next few issues the simple message will be that to improve profitability, you need to focus on interventions that have low costs and big benefits. Until you identify the real costs and understand how to control them you may not be focusing on the practices that are likely to bring you the best returns. Want to know more? 0.15 extra eggs 0.11 lambs/ewe (minus wastage of 0.04) produced/ewe 0.11 extra lambs/ewe for 1000 ewes 110 lambs TOTAL INCOME (£66.70 average price/lamb) £7337 NET RETURN £ 7337 – £ 1884.50 £ 5452.50* * Heavy ewes at mating have minimal response to flushing. A financial loss may occur in this case as there would be very few extra lambs resulting from additional feed costs. CBA is not a panacea but it is a useful to tool to help you look at how your practices impact on profitability. The example above is a good starting point to think about the efficacy of flushing but are all the costs considered? •• ●What are the labour costs associated lambing an extra 110 lambs? •• ●What are the feed and healthcare costs of rearing the extra lambs? •• ●What is the lost opportunity cost of using grass to raise these lambs rather than ‘saving’ it to bring ewes to a condition at mating whereby they do not need flushing in the first place? 2017 AUGUST & SEPTEMBER 7

Sheep Matters - August/ September 2017