Low cost, high output achieves financial resilience for sheep breeding enterprises

Sheep breeding businesses who run low cost enterprises can achieve high outputs, leading to gross margins of up to £145/ewe. This compares with an average of £69/ewe, falling to as little as £10/ewe in some businesses.

The figures come from interim results of the QMS Sustainable Producer Groups benchmarking project. The initiative aims to help participants develop their businesses to reduce environmental impact while improving their economic resilience.

The project covered both sheep and beef producers; 26 businesses across four groups provided economic and carbon footprint data. Each member was given an Economic Performance summary, a Carbon Audit report and a group summary, and has met to dissect and discuss their results and seek ways to improve.

According to SAC Consulting livestock specialist Poppy Frater who led the project, the gross margin in breeding flocks varied from £10/ewe up to £145/ewe. “The difference between the minimum and maximum is where the opportunity is.”

The top three enterprises in the breeding sheep group had four key drivers:

• Low concentrate cost (less than £10/ewe);

• Mid to low forage costs (less than £6/ewe);

• Above average rearing rates (average was 134%, maximum was 169%);

• Above average return per lamb (average was £87, maximum was £110).

“With a £135/ewe difference in gross margin between the highest and lowest in the group, there is a great opportunity for members to improve profitability through understanding each other’s businesses. With the top three businesses - by gross margin - ranking among the six lowest in variable costs, the dataset shows cost, largely driven by concentrate use, is an important profit driver,” says Ms Frater.

“Output is important too, however, as these low cost businesses are also in the top five in terms of rearing rate and above average for revenue per lamb. This shows that low cost does not necessarily lead to low output. These are examples of businesses driving profitability on both input and output sides of the equation, and are great examples to inspire others in the groups.”

Key themes among the top performers are use of rotational grazing, a drive to improve sheep genetics, and a desire to use performance figures across the enterprise to identify areas for improvement, she adds.

Bruce McConachie, QMS Head of Industry Development said: “Sheep producers are working to tighter margins than ever before, so it is more important than ever to look for ways to improve environmental and financial sustainability. These groups have done great work in showing that the two can go hand in hand and working to reduce their environmental impact often improves their financial performance.”

As part of the project, the Carbon Audit report identified that production efficiency was a key driver of the accepted metric of kilograms of CO₂ equivalent per kilogram deadweight. Some businesses were also shown as carbon negative on Agrecalc when including soil carbon sequestration figures.

The main objectives of the project are to:

• Help farmers understand relationship between carbon, meat production and profit;

• Benchmark financial and environmental data;

• Give feedback and discuss development strategies within groups

Benchmarking throughout the length of the project will illustrate trends within the businesses, the groups and across the national dataset. A second and final report is due to be published on the project later this year.

The interim report, produced by SAC Consulting, can be found here:

https://www.qmscotland.co.uk/sites/default/files/qms_interim_report_final.pdf

A detailed financial breakdown for each category can be found here:

https://www.qmscotland.co.uk/sites/default/files/interim_report_appendix_1_final.pdf