Dairy Operating Profit (formerly known as Economic Farm Surplus (EFS)) is a measure of farm profitability used for benchmarking comparison between dairy farms. The guidelines described in this article are based on the industry standard as set by DairyBase.
Dairy Operating Profit is the Dairy Revenue less Dairy Expenses where non-cash adjustments have been made to ensure that businesses are being compared on an equivalent basis.
Non- cash adjustments include:
- The value of change in dairy livestock numbers
- Unpaid labour and management (Labour adjustment)
- The ownership of run-offs (Run-off adjustment)
- The value of change in supplementary feed inventory
Operating Profit Calculation
Dairy Gross Farm Revenue (Dairy GFR)
Milk & Net Dairy Livestock Stock Sales (cash)
+ Other Dairy income (cash)
+/- Value of Change in Dairy Livestock Numbers (non-cash)
Farm Working Expenses (Cash)
+/- Feed Inventory Adjustment (Closing feed less opening feed inventory)
+ Owned Runoff Adjustment (if runoff is owned and not leased)
+ Labour Adjustment (for unpaid family management and labour)
+ Depreciation (non-cash as per accounts)
= Equals Dairy Operating Profit
50% Sharemilkers – use your own set of accounts to calculate Operating Profit. This can be compared with other 50% sharemilkers, but not farm owners.
Variable Order Sharemilkers – Combine the accounts of the farm owner and the sharemilker to calculate Operating Profit for the farm. This can be compared with other owner- operator farm
The following diagram shows the adjustments made to the cash income and expenses to calculate Operating Profit.