NSW Farm Performance in a Year of Extremes

The 2024-25 financial year was one of extremes for NSW dairy farmers with extraordinarily wet conditions in the North and significantly dry conditions in the South. Despite these challenges, average profitability on our NSW Dairy Farm Monitor farms was above the long-term average for the 5th year in a row. Average Return on Total Assets managed was 4.3%, down slightly from the previous year of 4.5%. In this episode we discuss factors that impacted these results and look at some of the regional nuances between the North and South group of farms participating in the project. This project is an ongoing collaboration between NSW DPIRD and Dairy Australia and marks the 14th year of DFMP in NSW.

Useful resources related to this podcast:

·       NSW Dairy Industry Overview 2025 and Snapshot

·       NSW Dairy Farm Monitor Project webpage with links to the Annual Report, Regional Summaries and the Interactive DFMP Report

·       Dairy Australia’s DFMP webpage with links to Annual Reports for all milk producing regions of Australia

This podcast is an initiative of the NSW DPI Dairy Business Advisory Unit – further information and resources are available here - Dairy | Department of Primary Industries

It is brought to you in partnership the Hunter Local Land Services

Please share this podcast with your fellow farmers and colleagues and feel free to contact us with suggestions or comments via this email address thebusinessofdairy@gmail.com

Further NSW DPI Dairy channels to follow and subscribe to include:

NSW DPI Dairy Facebook page

NSW DPI Dairy Newsletter - Connect with us | Department of Primary Industries 

Transcript here

Produced by Liam Driver

The information discussed in this podcast are for informative and educational purposes only and do not constitute advice. 

Transcript

The Business of Dairy

Episode #56 Transcript – “NSW Farm Performance in a Year of Extremes” 

Sheena Carter: Welcome to the Business of Dairy podcast. I'm your host Sheena Carter. Happy New Year to all our listeners who happen to be listening on the 1st of January 2026 when this episode comes out. You are super committed and it's great to have you with us. As per previous episodes coming out on this day, it is all about the physical and financial performance of the farms that participate in the New South Wales Dairy Farm Monitor project for the 2025 financial year this time. Dairy Farm Monitor is a national program run throughout Australia and for New South Wales this marks our 14th year of the program. It's a collaboration between New South Wales Department of Primary Industries and Regional Development and Dairy Australia and it provides farmers and industry and government with farm level data that helps inform strategy and decision making. Now it's an insight into a portion of the NSW industry, not the whole industry. So in the 25 financial year.

We assessed the performance of 30 New South Wales farms. And in that year, according to the New South Wales Food Authority, there were 443 active dairy licences. So these farms represent 7% of dairy licences in New South Wales in that year. And their milk production represents 10% of New South Wales' milk production in that year. Now, the participating farmers are very generous farmers. They participate anonymously unless they choose to identify themselves, but they open up their books, physical and financial records, all their physical and financial records, and we use this data in a template, dairy farm monitor template, to do a business analysis of them. So we look at the results at a statewide level and we also split the farms into a north and a south cohort as we see some quite distinct differences between these two groupings. The north and the south they have very different features such as different milk pricing structures, different commodity prices because of locations.

Different seasonal and climatic conditions. We've got sort of subtropical systems in the north and more temperate in the south. We've got coastal farms; we've got inland farms. We have farms with all, you know, having particularly different resources. For example, some are irrigated and some are dry land. So ultimately, all of these farms, the crux of it is they are managed by people and people have different management styles and skills and they also have different goals for their business. So all of these factors combine to impact an individual farm's performance in a particular year.

So the setting the scene, sort of the conditions in New South Wales in that financial year, we have a map, which I obviously can't show you because this is an audio podcast. There is a webinar, which I can direct you to, and you can have a look at this map. Or in our annual report, which is on our website and Dairy Australia's website, you can see a rainfall decile map, and it is for the financial year. And you can literally draw a line between the north and the south farms in New South Wales in that financial year, showing they experienced extremely different climatic conditions across that period. So in the north, it was very wet. The first half of that financial year actually started off okay. But unfortunately, we got to March and conditions were quite wet already up in that region. and.

But then we had ex-tropical cyclone Alfred develop and dump a lot of rain in that north coast region, which impacted, obviously, pasture.

Production, paddock access, et cetera. So it was already wet. And then, unfortunately, we got to May and we had another major wet weather event, which was called the East Coast Severe Wet Weather Event. There was unprecedented flooding in parts of the mid-coast region and extreme wet conditions on all farms in that region and further north. Every farm in our north group received above average rainfall for that year. Some of them well above average rainfall and unfortunately, obviously not effective rainfall. So the impact seen on farm where there was severe erosion along watercourses, loss of farm infrastructure, obviously pumps, irrigation infrastructure, even sheds. It was quite broad ranging in the damage that it did, machinery, equipment. There was also unfortunately loss of livestock and feed, so both stored feed and paddock feed. It goes without saying there was impacts on herd health and milk production, which we're seeing that impact on milk production play out in Dairy Australia's milk intake reports as we progress from May and into this current year. We're seeing a decline on milk intake in that region.

And not to mention the severe emotional and mental toll it took on the affected farmers. Industry-wide, there were 119 farms in May that were impacted by that event.

Conversely, we come to the south, and that region was experienced in mixed conditions, but predominantly dry conditions that progressed throughout the financial year. And they're still, as we speak, continuing to expand across the region, particularly in the inland southern region, so that sort of Murray and Riverina region. Fortunately, for those farms that have irrigation down there, there was generally good access to irrigation water and it was at a reasonable price. So this helped many of those businesses manage the conditions that they experienced.

When we look at some of the physical features of the farm, so if we're splitting the farms into the north and the south grouping, we see that the south farms tend to be larger. So milking more cows using more land area. This year there were an average of 334 milkers in the north group and 612 in our south group. I should mention the split of farms. We've got 14 farms in the north cohort and 16 in the south cohort this year. The usable land area, 320 hectares in the north and 513 in the south. And we see that production per cow in that south cohort, in terms of milk solids per cow.

622 kilos of milk solids per cow in the south and 484 in the north, a function of their systems and type of cow being met, etc. Many other factors impacting that. Another key metric, looking at labour efficiency. So when we're talking about labour efficiency, we're looking at the kilos of milk solids produced per full-time labour equivalent. A full-time labour equivalent is 2,400 hours worked across the year. So we see that our south farms tend to be more labour efficient than our North farms. In the North, they average just under 31,000 kilos of milk solids per labour unit. And in the South, it was 51,158 kilos of milk solids per labour unit. So there are differences between the North and South farms. Also, I should mention that we have, in the project, we have some total mixed ration farms. So businesses where the feeding system isn't pasture-based. They are generally contained and fed a fully mixed ration and these farms are all in the south cohort.

If we look at pasture utilisation, one thing we work out is the amount of pasture utilised and in this instance, I'm just talking about pasture utilised on the milking area, the milking platform. And we're looking at this in terms of tonnes of dry matter per milking hectare that has been utilised. So there's a difference between tonnes of dry matter grown and tonnes of dry matter utilised. Often we're growing more than what we actually utilise. But for the north, there was an average of 7.9 tonnes of dry matter per hectare utilised, which was down slightly on the previous year. Now, the proportion of feed that was directly grazed by the milker increased slightly and the amount of conserved pasture decreased slightly. So this is not surprising given the conditions that were experienced with those wet conditions where you haven't got access to paddocks because they're too wet. So you can't be grazing the pasture and you, in terms of conserving any pasture you might have, and this can include crops.

When I say pasture, it's dry matter, pasture or crops such as maize on that milking platform. So those really challenging conditions have probably constrained the amount of utilisation on the milking platform in the north. If we look at the south, it was a very different story. They actually increased the amount of pasture directly grazed and the amount of fodder conserved so hay and silage made on the milking area it went to 9.2 tons of dry matter per milking hectare so a 1.6 ton increase in the amount of fodder grazed and 600 kilos of dry matter increase in the amount of conserved forage on the milking platform so yeah that that sort of lower value of 7.9 tonne of dry matter on the north farms, probably constrained somewhat by the conditions that were experienced as a result of the season. Now, if we come to some of our financial figures, when we're measuring profitability.

We look at our profit in terms of earnings before interest and tax in total dollar value. And we also report it on a dollars per kilo milk solids basis. Important to note that earnings before interest and tax includes cash and non-cash items. This is a true profit analysis where we look at the impact of all the resources available to the business in generating a profit. And it includes looking at the change in value of inventory, whether that's livestock or feed and water inventory over the course of the year. It also factors in imputed labour. So we don't look at the drawings a business owner might take out of the business because every business will take out different amounts of drawings. So it's hard to put a value on owner-operator labour in that case. So we standardize the value attributed to owner-operator labour, which we call imputed labour. So that's sort of a non-cash cost. And we also factor in depreciation. So the loss in value of planted equipment and machinery as it is used over time. So we've got some non-cash costs in our earnings before interest and tax. Our EBIT, earnings before interest and tax or operating profit, we use that to work out our return on total assets. And when we're looking at total assets in Farm Monitor, it is the value of all assets used.

So then from our earnings before interest and tax, we take away our finance costs and our finance costs are our interest and lease costs. That gives us our net farm income. From that, that farm income divided by the equity we have in the business gives us our return on equity. Sorry, that was a bit of a lesson in Farm Monitor methodology and terminology, but good to be clear on that. So we saw for New South Wales on average, for the farms in the project on average, we saw a very slight increase in average EBIT per kilo milk solids. It was $2.14 per kilo milk solids this year, up by two cents on the previous year.

And of our 30 farms, all farms made a profit except for one, which was significantly impacted by the conditions it faced in that year. We had our lower performing farms in the north tended to be the more severely impacted farms as a result of the flood and wet conditions. And in the south, our lower performing farms tended to have a bit more difficulty managing the conditions with the resources that were available to them throughout that drier period. So back to $2.14 per kilo of milk solids, that is above the long-term average for New South Wales. A long-term average is $1.55 per kilo of milk solids, so over that 14-year period. It's the fifth year in a row that it's been above that long-term average, and it's actually the second highest profit in 14 years of New South Wales Farm Monitor when we adjust for inflation.

So that looks like it's a $697,000 EBIT average per farm. Then if we take away our finance costs, our interest and lease costs from our EBIT, it resulted in a $478,000 net farm income average per farm. Remember, these numbers aren't all actually cash because we're factoring in movement of inventory and non-cash items as well.

So our finance and finance costs, interest and lease costs, they continued to rise on the previous year. And this has been driven by additional borrowings. Our average finance costs were $219,000 per farm in the data set. Now, the higher EBIT, while we had a higher EBIT than the previous year, the increase in the value of total assets managed meant that the return on total assets managed was marginally down on the previous year. It came in at 4.3% this year, down from 4.5% the year before. So still a relatively strong performance for the year.

In movements up and down in terms of variable costs and overhead costs and a slight decline in gross farm income across the state, but there are significant regional differences. So I'll elaborate on that next. So when we look at the performance of the North compared to the South, we see that the North, the average earnings before interest and tax this year was $1.63 per kilo of milk solids. In the South, it was $2.59 per kilo of milk solids, but within those two groups, there is a wide range, in performance. So north, we ranged from a negative 91 cents per kilo milk solids up to $5.06 per kilo milk solids. And in the south, the range was 45 cents per kilo milk solids up to $5.46 per kilo milk solids. So you can see there is a wide range in performance within those two groups.

So milk price, there are differences in milk price depending on where the farm is located in New South Wales. In the north we tend to have higher milk prices relative to the south. This year that price differential was $1.56 per kilo milk solids which is slightly larger than what we've seen in the past but the north of the state the milk price held relatively stable. It was an average across the farms of $12.38 per kilo milk solids, which was only up one cent on the previous year. And in the south, we saw lower milk prices relative to the previous year. So their milk price for the group decreased by about 5%. So what did happen though, is that we had an increase in livestock trading profit in both the north group and the south group. So the increase in livestock trading profit resulted when we factor in milk price, other farm income and livestock trading profit. We had a gross farm income of $13.49 in the north and it was $11.74 in the south. So our milk price in the south for the group averaged $10.82 per kilo milk solids. There was a 41% increase in the livestock trading profit in the south to 83 cents per kilo of milk solids, but that wasn't enough to counter the lower milk price. So that resulted in a lower gross farm income of $11.74 per kilo of milk solids.

So that's the income side of things. And then we look at our costs within the business. So our variable costs across the North and the South group, we saw a decrease in variable costs relative to the previous year. In the North, this was down marginally, four cents per kilo of milk solids to $6.86.

So we saw increases in shed costs, but it was really feed costs that had the greater impact. When we talk about feed costs, we have total feed costs. Total feed costs are made up of purchased feed and adjustment costs and homegrown feed costs. Now, in the north, the total feed costs decreased by 13 cents kilo milk solids, which was driven by lower purchased feed and adjustment costs, which were down 72 cents. So the driver of this was really the unit price per tonne of purchased feeds, so dollars per tonne dry matter was lower in this financial year than the previous financial year. However, there was an increase in homegrown feed cost of 36 cents per kilo milk solids. So the lower purchase feed prices on a dollar per kilo milk solids basis was able to offset the higher homegrown feed costs resulting in lower total feed costs. The increase in homegrown feed costs is multifactorial. There were increases in fertiliser, hay and silage and pasture and cropping costs on a dollars per kilo milk solids basis.

And in the north, these increases are likely to have been driven by the wet conditions and pasture losses. And so the need to re-sow or re-renovate pastures, as well as the potential focus or decision to perhaps increase the amount. For focus on increasing homegrown feed production. Because what we saw towards the end of the financial year, we started to see purchase feed prices increasing as feed supply started to tighten as a result of conditions, particularly in southern New South Wales and Victoria and South Australia, where a lot of our fodder comes from. Those regions have been severely impacted by drought, so feed supply becoming tighter, supply and demand price going up. In terms of the south, the variable costs were down 17 cents a kilo. So that translated to $5.69 per kilo milk solids. So there were decreases across all our variable cost categories. So our herd costs, shed costs and feed costs on a dollars per kilo milk solids basis.

Homegrown feed costs, when we're looking at feed costs, remain the same at $1.67 per kilo milk solids. But again as per the north we saw purchase feed and adjustment costs decrease on this basis again driven by a lower unit price dollars per ton dry matter for purchased fodder and concentrate on average. When we look at our overhead costs there's a bit of a different story between north and south in this situation. In the north we saw overheads increase by about nine percent and in the south they decreased by about 4%. So north average total overheads was $5.01 per kilo milk solids and in the south that was $3.47 per kilo milk solids. The increase in the north is predominantly due to an increase in paid labour and repairs and maintenance. So the paid labour increase on a dollars per kilo milk solids basis is driven by slightly higher hourly rates and a reduction in labour efficiency across the year.

It's also interesting to note that this applies to both north and south. We are seeing in the data set more farms employing overseas labour. Not that this comes with a higher hourly rate. They are still paid the same rate as any other employee, but there are other on costs associated with employing that overseas labour which will impact total labour costs.

Repairs and maintenance, this increased for numerous reasons. Part of it is that when we've had significant events that have resulted in disaster declarations and grants being made available, where that grant is related to repairs and maintenance, we do net that off, repairs and maintenance in Farm Monitor. So there were less grants in that financial year. The other thing that's coming out in the data is we're seeing an increase in the value of plant and equipment and significant buildings on farm as farms are investing back into the business. So this obviously comes with additional repairs and maintenance costs in businesses. It also comes with increased depreciation costs and we saw depreciation costs rise by 11 cents in the north to 63 cents per kilo of milk solids.

Now, in the South, it was slightly different. Here we saw a decrease in paid labour on a dollars per kilo milk solids basis. And this is slightly nuanced again. So there's a slight increase to number of labour units on farm and also an increase in the average hourly pay rate that we saw in the data. However, there was an 8% increase in labour efficiency. And so that increase in labour efficiency, so the amount of kilos of milk solids produced, was enough to offset the increase in costs on a dollars per kilo milk solids basis. I hope that makes sense. Another example of this is repairs and maintenance. So the total spend increased on repairs and maintenance, but the additional milk solids production saw a reduction in costs on a dollars per kilo milk solids basis for repairs and maintenance.

Conversely, however, the non-cash cost of depreciation increased on a dollar per kilo milk solids basis and on total non-cash dollar basis because the increase in depreciation, wasn't able to be diluted by the increase in milk solids production. So the milk solids production wasn't enough to decrease it on a dollars per kilo milk solids basis. Now, if we're looking at EBIT, I've mentioned, I think, that the EBIT in the north was $1.6 163, that translated into a return on total assets of 2.8%, down from 3.1% in the previous year. The lower return on total assets has been driven by a higher value of total assets in the north. As we're seeing, farmers invest back into their business, including upgrades, plant and equipment purchases as well. So remember EBIT divided by the value of all assets managed gives us our return on total assets.

Similarly, in the north, the return on total assets decreased, went from 6% to 5.6% with an EBIT of $2.59. The lower return on total assets relative to the previous year in the south was really driven by the slightly lower EBIT. The value of total assets remained pretty stable, but the composition was slightly different in that the value of lease assets decreased and there was an increase in the value of current and non-current assets as we see the farmers continuing to invest back in their business.

Looking at the performance historically, there's graphs that illustrate this much better than how I'm going to articulate it. But in the last few years, while we've seen stronger milk prices across the state on average relative to the previous years in Farm Monitor, we're seeing stronger EBITs. Our long-term average EBIT for the North is $1.13 per kilo milk solids and it's $2.02 per kilo milk solids for the South group. So that translates into a long-term average return on total assets of 2.1% in the North and 4.5% return on total assets for the South. And it's probably better if you have a look at the annual report or the interactive report we have on our website to get a bit more insight into that because it shows the trends in the industry in the New South Wales farms participating in the project over that 14-year period. But it is evident that in the last five or so years, we've had stronger milk prices on average. And this has certainly helped the performance and returns that we've seen on farms across the state.

So in summary, it was another profitable year for the New South Wales dairy industry, despite the challenging conditions that were faced by farmers. It was the second highest year in terms of profit when we adjust for inflation. I've mentioned we've got quite a bit of variation in milk pricing between the north and south, but we had stronger livestock trading profits in both regions, impacting gross farm income.

The lower purchase feed and adjustment costs reduced our variable costs in both regions as well, mainly driven by that lower per unit price of feed, concentrates, fodder on a dollars per tonne dry matter basis. Our depreciation costs and our finance costs are continuing to rise as we've got farms investing back into the businesses in different ways. So we've got the depreciation on plant equipment and significant buildings that it has to be accounted for. And often these developments occur with finance. So we're seeing increased in interest and lease costs as well. So I think we are still seeing positive sentiment in the industry at the moment, despite the challenging conditions. We're seeing farmers investing back into their businesses, which is very pleasing. And we are seeing that that milk price continues to support that sentiment and investment on farms.

So if you would like to dig into the detail, get into the nitty-gritty of the performance of New South Wales Farm Monitor Farms for the year, there is an annual report available on our website and the Dairy Australia website. We also have an interactive report that presents some high-level data for all 14 years across New South Wales, which is pulled together by Juan Gargiulio, a colleague of mine. It is fantastic. I'd encourage you to hop on and have a look at that. And we also have our New South Wales industry overview, which is updated each year, and a snapshot report showing some high-level figures about the New South Wales dairy industry. Links to all of those will be in the show notes, so it is easy for you to find. But thank you for listening, and we look forward to talking to you in the next episode.

That's all for today's episode of the business of dairy we hope you enjoyed diving into the fascinating world of dairy farming and industry insights as we continue to expand and evolve we greatly appreciate your support our show is thriving attracting new listeners each week but we believe there's always room to grow and we need your help to make it happen if you've found value in our discussions we kindly ask you to take a moment to rate and leave a comment about the podcast on your preferred platform. Your feedback not only lets us know what you enjoy but also helps boost our visibility to others who might benefit from our content. I sincerely thank you for being part of our community and we look forward to bringing you more engaging episodes in the future with the continued funding and support of the Hunt Local Land Services. Until next time, stay curious and keep milking those opportunities.