DAIRY farm performance rebounded strongly in 2013-14 after a sharp decline the previous financial year, Australian Bureau of Agricultural Research Economics and Sciences research has shown.
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Average 2013-14 farm cash incomes reflected large increases in milk prices for dairy farmers in southern New South Wales, South Australia, Victoria and Tasmania, the research found.
The average rate of return to capital — excluding capital appreciation — for Australian dairy farms in the 10 years to 2013-14 was 2.1 per cent.
In 2012-13, average farm debt rose by around 9 per cent as a result of increased working capital debt that was largely used to purchase fodder because of dry seasonal conditions.
Higher farm incomes and improved seasonal conditions in 2013-14 meant there was reduced need for working capital and many farmers reduced this component of their debt.
Between 1999-2000 and 2013-14, the number of dairy farms in Australia fell by around 45 per cent.
The number of smaller dairy farms — milking less than 200 cows a year — declined by about two-thirds and accounted for much of the decline in the total number of farms.
The number of large farms (milking more than 350 cows) also fell, by around 12 per cent and the number of medium farms finished the period higher as a number of small farms increased their herd sizes.
While large farms — and to a lesser extent, medium farms — had been able to take advantage of periods of favourable milk prices and production conditions to record well-above average farm incomes in some years, small farms' income remained modest, the research found.
This was due to their lower capacity to increase milk production when seasonal conditions became favourable.
Changes in rates of return by herd size also reflected the relative magnitudes of changes in farm incomes and profits.
The research found that most of the increase in debt for dairy farms over the past decade, was for large dairy farms.
There were much smaller increases in average debt for smaller dairy farms and these farms had higher average farm equity than either medium or large farms.
However, large farms made greater investments in new farm capital each year, largely funded by debt.