Top 5 KPIs: Scott Townshend
We take a look at the Top 5 farming Key Performance Indicators (KPIs) that Trev CEO and creator Scott Townshend likes to focus on. After roles in Fonterra’s Head Office and as the Commercial Manager for a 14,000-cow farming operation across the Central North Island, Scott understands the importance of measuring data to get a handle on farm performance.
1. Profit per hectare ($/ha)
At the end of the day, you’re running a business and financial sustainability is key to environmental, social and other goals of the operation. Profit per hectare represents the bottom line of the business. It tells you whether you’ve done a good job at matching your combined operating cost and debt structure to revenue streams.
By standardising this metric on a per hectare basis, it gives you an idea of performance against the farm’s biggest asset in land, but also enables you to assess your performance relative to other potential land use. Profit is subject to volatility in milk price (which you may have little influence over) so you need to take it with a grain of salt when comparing this metric year on year. Still, it’s the bottom line and is a key indicator of overall business sustainability bringing the combined performance of many aspects of the business together.
2. Operating cost per kilogram of milksolid ($/kgMS)
Managing your operating cost structure, along with excellent operational performance (see #3) is arguably the biggest way to influence both the profitability and net cash flow of the business. Operating cost looks at all of the costs of the business required to produce milk, and by standardising it on a per kgMS basis it’s a quick way of assessing costs against milk price. It’s also a deadset easy way to review any new costs in the system and if that new spend will genuinely result in additional milksolids production and dilute operating costs per kgMS. As long as you know you’re roughly comparing apples with apples (natural resources and farm system preferences) you can review your cost structure with mates and neighbours that are open to benchmarking financial information.
Operating costs per kilogram of milksolids will be impacted by total production, so while it’s predominantly a financial KPI measuring your $/kgMS demonstrates your ability to execute the farm system and get milk into the vat. Events out of your control such as drought can also have an impact on your operating cost per kgMS so these should be taken into consideration, but you can also demonstrate your ability to react to external factors by adjusting your cost structure.
3. Milksolids per hectare (kgMS/ha)
On the whole, New Zealand dairy farmers are largely price takers. That being the case, the best way to influence revenue is through sustainable milk production.
The productive capacity of land will vary from region to region and even within micro-climates, so it’s important that before you start the season you know what your target is. Set a kgMS/ha target that makes sense for your land and other natural resources, as well as your farming philosophies (there’s no point setting a System 5 productivity target if you’re planning to operate as a System 2). There is such a thing as too much productivity though so measuring kgMS/ha alongside your operating costs per kgMS is encouraged to ensure you don’t end up chasing uneconomic marginal milksolids production.
Comparing your productivity with other farms is a great way to see where you’re at and to benchmark. Don’t forget, though, that other farms have different resources to play with or perhaps have a different ethos, so measuring your data against your own well-considered targets is equally, if not more, important.
Tip: Having two kgMS/ha reference points can be handy. Use one for budget (i.e. what productivity you need to meet your financial budget) and one for target (i.e. what you’re striving for).
4. Cows in vat (% cows wintered)
The best way to ensure milk goes in the vat is to ensure that there are cows available to go into the vat. ‘Cows in vat’ is a simple metric that looks at the number of cows that are milking into the vat as a percentage of cows wintered. Your cows wintered should represent the number of milking age animals that you start the season with, but remember to think about this pragmatically as cows wintered may not necessarily reflect the number of animals on the farm in June. It can also include milking age animals out at grazing, and should be adjusted for any early season sales or purchases. Put simply, the cows in vat percentage should tell you how many of your milkable animals are in action.
How many of those animals are going into the vat depends on other factors worth keeping an eye on and drilling down into. These include calving spread, death rates and, perhaps most controllably week on week, the number of animals that are in-milk but being excluded from the vat for different reasons.
Measuring against targets is crucial for this KPI too. Set targets across the season to reflect a cumulative death rate, along with the budgeted timing of culls and dry-off.
Tip: Expanding this to Cow Milking Days (CMD/ha) is a great way to form a cumulative view of how well you’re maximising saleable milk production across the season, and standardising this for comparison with other farms.
5. Pasture eaten (kgDM/ha)
This one’s pretty straightforward - grow as much grass as you can sustain, minimise wastage and get as much of it into milking animals as possible. Pasture eaten is something often monitored on an annual basis at the end of the season, but it’s something that carries with it the core principle of farming in New Zealand. There’s certainly nothing wrong with introducing supplementary feed, but if you’re farming in Godzone your best bet is to maximise your pasture, whatever your farming system.
Regular checks of pasture eaten, even if only in theory, can be the litmus test for all things pasture: growth rate, nitrogen application, grazing strategy and more. Of course, external climatic events will have an impact, so it’s always worth keeping those in mind.