Monday, May 28, 2012

How much money do dairy farmers make?

This article in the press last year caused a few headlines and even prompted me to call talk back.  
Inland Revenue Department figures provided to Labour revenue spokesman Stuart Nash show that, in the latest full year for which figures were available, the average tax paid by dairy farms was $1506 a year. The 17,244 registered as being in the dairy sector, including companies, trusts and individuals, paid only $26m in tax.
It caused me to do a bit of research and look into the subject a bit further.   

Are all businesses listed as being in the "dairy sector" dairy farmers? Can you be in the "dairy sector" and not be a dairy farmer?
The figures also show that more than half – 9014 – reported a loss for the 2009 year and another 2635 reported trading income of between $1 and $20,000.
So, 2635 had a income of between $1 & $20,000. Its probably fair to say that these businesses are not active dairy farmers or they are very small hobby farms.
If we subtract the 9014 businesses that lost money and also subtract the 2635 that had an income of less than $20,000. We are left with 5595 business that paid tax of $26m.  $26m divided by 5595= $4,647 of tax paid per business.  Which is still a very low number.

Every year accountants around the country collate their client’s financial data and release a summary document.  It is a great way to compare the different farming types and the changes in financial performance from year to year.
I have been reviewing the client data from my accountants, Malloch Mclean in Invercargill.  They have a large farming client base that gives a good insight into farming in Southland.

I find this table very interesting.  In the 2009 year (that is referenced in the article) shows the average dairy farming client paid $32,754 in tax.  This is quite a different figure from the $1,506 quoted in the press. This figure will include sharemilkers and farm owners. I would expect that sharemilkers will pay more tax than a farm owner would.

Its interesting that the average dairy farm made a cash loss of $7,137 in the 2009 year.  So I bet it sucks when you have made a cash loss and then you still have to pay $32,754 in tax!

My thoughts are that; the IRD numbers are for entities that consider them selves to be in the dairy sector.  This does not mean they are dairy farmers.  Client data from accountants is collated from their clients that they deemed to be dairy farmers, so I am more inclined to believe these figures.

Either way 2009 was not a flash year for dairy farmers.  The years from 2005-07 had an average payout of $4.38, then out of the blue the 2008 year had a record payout of $7.66. Dairy farmers went crazy trying to produce as much milk as possible to benefit from the high payout.  The price for fertilizer went up by about 30% and farmers scrambled to find additional stock feed and grazing.  But the sheep/beef farmers were on the ball and demanded top dollar for grazing and feed.  As a result stock feed/grazing costs increased by 32%.  Then all of a sudden the payout dropped back to $5.20 but the farm working expenses didn't fall.  The result was an average loss of $7,137. 

Other interesting facts from the Malloch McClean 2009 client data:

  •  Whopping interest bill of $376,914!
  • Tiny Principle payments of $16,943
  • Working expenses were 66% of income in 2009 and 43% in 2008
  •  2007-2010 the average principle paid was $29,263.  And then in 2011 it jumps to $151,009, so it is obvious that the banks have tightened up on things and are demanding that debt be repaid. So essentially any increase in operating profit achieved now is being passed straight onto the banks. 

And finally, a quick look down the net farm cash surplus line and we see that the average surplus over the five years from 2007-2011 is $330,269.

So I haven’t quite got the violins out for the dairy farmers just yet.