Return on assets the key driver for Carlisle River dairy farmers Matt and Alli Reid

Dairy farmers, want to know how to achieve a 10-per-cent return on assets and triple equity? Leading Victorian producers Matt and Alli Reid have the answers.

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IF IT makes no cents it makes no sense. It may seem a cliche statement, but for Matt and Alli Reid it’s also a strict business philosophy that is paying more than handy dividends in the rolling hills around Carlisle River, near Colac, in southwest Victoria.

Here, across 650ha of 1000mm-plus rainfall country, the pair run a finely tuned dairy operation milking 675 cows in a system more focused on profitability than it is on production.

Since relocating from drought-ravaged irrigation districts of northern Victoria less than 20 years ago, the Reids have more than doubled the size of their business, switched from supplying the global to domestic milk market to reduce risks associated with fluctuating prices, lifted annual returns on assets to almost 10 per cent and are on track to more than triple their admittedly low equity.

“This is what really motivates us,” a humble Matt says, pointing to a computer spreadsheet showing last season’s return on assets at 9.7 per cent — almost double the 5.8 per cent average return of southwest Victorian dairy farms in the Farm Monitor Program (up from 1.9 per cent in 2018-19).

“Production figures make me squirm a bit, you can bend them to suit whatever your argument. These numbers are the ones that matter.”

Matt and Alli said farming with low equity was tough and came down to discipline and being strict. Managing risk has been an essential part of the Reids’ success so far, and they have sought to limit their exposure to fluctuating inputs as much as possible.

Whether it be through feed, energy and milk supply contacts or growing as much pasture as possible “every decision is made with reducing risk in mind”.

“We have spent a lot of time investigating methods of reducing risk and increasing the speed of getting to a point where life is easier,” Matt said.

“We started off with 15 per cent equity, we’re currently in the 30s but we can see our way to 50 pretty quickly.”

Working on the basis that they don’t know everything, the Reids employ experts to fill knowledge gaps, are fastidious when it comes to planning and financial oversight, work hard to provide the best and safest working environment for their five staff, and have positioned themselves to capitalise on industry trends such the A2 milk phenomenon.

“We want to be in that spot where preparation and opportunity meet,” Matt said.

It also helps that the Reids love what they do, with dairying providing a good life for them and their children Elijiah, 17, Angus, 16, and Rylee, 12.

“We’ve always said the day we don’t enjoy it, we’ll go and do something else,” Matt said.

“If you understand the market that you supply, understand the risks that market entails, are good at what you do, use the experts when they are needed and track your performance (you can do well out of dairying).

“We’ve always been positive people and taken responsibility for our own destiny. That’s what it comes down to.”

ON THE BOIL

MATT and Alli both hail from northern Victoria, with Matt growing up on his family dairy farm between Rochester and Kyabram. Matt’s father, Tom, emigrated from Scotland when he was 16.

“I was the kid who dropped his school bag and went and found the old man to see what he was doing for the day,” Matt said. “I never knew I wanted to be a dairy farmer. I wouldn’t say I didn’t want to do it, but it was not something that was burning inside me.”

On leaving school, Matt did a boilermaker trade while Alli completed a traineeship at a local retail store. It was during the third year of Matt’s apprenticeship that he decided boilermaking wasn’t for him and the pair packed up and travelled around Australia.

“It was probably in that time, on the phone to my parents, that the thought-process starting ticking away where if we were going to give this farming caper a go we better do it before we get too old, so at the ripe old age of 23 or 24 we decided to come home and give farming a go,” he said. “It really wasn’t long before I realised that’s what I should have been doing all along.”

Back then, at the end of 2000, the Reids were milking 500 cows and supplying the export market “and like most of the industry driven on cost”. Then came the millennium drought.

“In 2002 everyone had a strategy,” said Matt, who with limited opportunities to expand at Rochester chose to lease more reliable irrigation country at nearby Katamatite.

“Some people bought water, some people bought feed. We were able to take the cows across there and grow the grass that we needed to on the Murray system as opposed to the Goulburn system.”

It was during this nine-month lease that Matt and Alli had the chance to cut their managerial teeth and “start thinking what the future looks like”.

“Naively we thought what bank in their right mind would give us a million bucks to give my parents the retirement they deserved,” Matt said. “At the time there was quite a bit of talk about superannuation funds buying big properties and long-term leases. I remember the old man came across to breakfast one morning and I put it to him ‘why don’t we sell the home place and go and find one of these super farms’. It would give them an opportunity to realise their asset — the 30 years they had worked for — and we both really enjoyed the challenge, so it gave us an opportunity to think about looking further afield.”

NO BONES ABOUT IT

THE Reids realised that “to run a reasonable number of cows sustainably” they would need to invest in either Tasmania or southwest Victoria.

      Matt joked that his mother, Sue, was reluctant to go “overseas” to the Apple Isle “so shortly after we were on a plane looking at places in the south west”.

“This place was advertised as a lease,” Matt said. “We came down and had a look and in terms of the bones of the place, we liked what we saw. There was stacks of concrete, and there was a good dairy, but it lacked some loving.”

The Reids negotiated a three-year lease purchase deal — Ali points out that “we didn’t want to put all the money into it and not have the option at the other end” — with a fixed price at the start and a 50:50 share agreement with 400-500 cows and plant.

With the couple “incredibly green” Matt’s father set them up with accounting and strict budgeting process, but tragically, that same year, was diagnosed with cancer and passed away within 18 months.

After his death, Matt and Alli negotiated a commercial set-rate agreement with Matt’s mother and engaged the services of respected dairy consultant Ian Gibb. Before making a formal loan application to buy the farm they spent two years with Rural Finance “setting budgets, reviewing, setting targets, reviewing”.

They were recipients of an $800,000 2 per cent young farmers’ rate subsidy.

“We’ve been given the opportunity to grow before we should have,” Matt said. “Our balance sheet in 2006 when we got our first lump of finance said 14 per cent equity so we shouldn’t have been allowed to go then.

“We understand you make your own luck, but we have been lucky in a lot of cases where it has fallen our way. We missed the brunt of the Global Financial Crisis – we were supplying Dairy Farmers at the time, they were selling and as a sweetener to get their Queensland suppliers to agree we were getting 63c a litre when the industry had just collapsed.”

The Reids added to their property with strategic land purchases in 2006, 2008, 2011 and 2016. All country adjoins in the tightly held district, which once had about 30 farms, but is now down to three or four. The land they bought in 2008 “two farms up the road” was an outpaddock that had them “up around $10,000 a cow” to meet financial obligations.

Matt said during that period until 2011 “at 10,000 bucks a cow, everything has to go right”. The 2011 purchase saw running costs diluted as the herd increased from 425 cows to a peak of 760.

CROSSING OVER

THE Reids now occupy about 650ha, including 500ha of their own land. The herd is predominantly Holstein.

     Matt and Alli previously ran crossbreds, but haven’t used any straws of Jersey semen for six or seven years.

     “It’s not because we don’t believe in the crossbred animal, it’s because the market wants black-and-white animals and we can produce double the heifers we need … it becomes an additional income stream.”

They have the added bonus that almost all the surplus heifers, sold at a month old, carry the premium A2 protein gene. For some time the Reids have been of the opinion “that our piece of the A2 pie might be surplus A2 heifers”.

Matt first bred for A2 after attending the 2007 Australian Dairy Conference and said it placed them in good stead for future opportunities.

There are four calvings, in March, June, September and December. The Reids work on a full fixed-time artificial-­insemination program, which Matt said required discipline to be successful.

About 150-180 cows calve at a time, allowing for easier management. Commercially minded, the Reids select for fat, protein and fertility.

“It is really easy to say, particularly in split-calving systems, that she is a good cow and we’ll let her go over (despite not getting in calf),” Matt said. “With the fixed time I don’t even look at the animal … I just run the filter and if they are outside a certain amount of days that means they’ve had two programs and they just don’t get rejoined.”

Any cows with three reported cases of mastitis are also shown the door. Acknowledging they farm in a wet environment, the herd’s cell count ranges between 100,000 and 120,000 cells/ml for the majority of the year. Matt and Alli strip — or manually inspect — cow udders once a week in an attempt to keep on top of any mastitis issues.

PASTURE PUSH

THE Reids grow most of their own feed requirements on the farm, whose soils range from black sand to river flats.

     While most pastures are ryegrass-based with perennials dominating, annuals and biannuals are also used each year.

      They’ve also grown maize for the past 10 years, but not this year. Matt said they were “quite aggressive” at sowing and renovating pastures and for the past couple of years had sown 14-15 tonnes of seed annually.

   “If we spend $50,000 or $60,000 on ryegrass seed that underpins our pushing $3 million worth of turnover … it’s pretty simple maths,” Matt said.

Hay is a season-to-season proposition, but the Reids mostly grow silage.

Matt said cows received about two tonnes of grain in the bail. While the industry “text book” suggests that cows should be fed wheat, the Reids’ ration is barley-based.

“Through the winter, by feeding barley with a little bit higher NDF (neutral detergent fibre) we seem to have more content cows,” he said. “We are not looking at squeezing 10,000 litres out of each animal, and at that point wheat is probably more important.”

Matt said when it came to buying their grain there was no one strict strategy, working with growers, traders, contracts and futures.

The Reids didn’t buy any grain at harvest last year, but are “licking their lips” with this year’s bumper harvest in eastern Australia forcing prices down.

Cows produce an average 550kg of milk solids or about 1kg of milk solids per liveweight. Last year the average was up about 575kg of milk solids.

While the split calvings means production is fairly consistent during the year, it peaks in spring at 17,000 litres a day compared with 12,000 litres in late summer.

Cows are milked in a 50-unit rotary.

“We believe in technology. You’ve just got to be able to pay for it,” Matt said.

“Because of our humble beginnings, we are always cautious around capital investment. Numbers are funny. You can make them sound as good or as bad as you like, but with any significant investment we always make sure that a business case has been developed and Ian and others get a crack at it.”

FRESH APPROACH

FOUR years ago the Reids changed their business to target the domestic fresh-milk market.

The switch “was borne out of acknowledging that farming with low equity in modern-day ag where you are supposed to harvest the highs and manage the lows … with milk price volatility and climate variability it’s bloody hard to do”.

“A business of our size, we have seen swings of $800,000 to one million bucks in income,” Matt said. “It is too hard. With changing production systems, we understand we’ve added cost to our system, but we also understand doing what we have done gives a higher, more consistent return.”

Last year, when supermarket giant Coles first announced it would offer direct supplier contracts, Matt said their mindset was “already there”.

The Reids’ farm was the first to sign up to the Coles contract. According to Coles’ online supplier portal, milk prices for dairy farmers in western Victoria are locked in at $7.03/kg of butterfat and $8.73/kg of protein from January to August and $5.06/kg of butterfat and $7.02/kg of protein for September to December, for the next three seasons.

Matt said by making changes to their systems and forming partnerships with the likes of Coles “we can actually make long-term strategic decisions so we can go to the market and buy barley when it’s say $200 a tonne … we can see our way clear”.

It also enables them to clear their debt more quickly.

“We are making additional voluntary principal payments because we know we can and we can actually plan in advance of the three to six months we could when supplying an export-based processor,” Matt said.

“It has changed our model completely.”

GROW FOR IT

MATT said the biggest area of growth for the business had been in human resources management.

Alli completed a dairy HR diploma and works hard at people management with regular staff meetings with their five workers addressing issues such as production, feed, husbandry and occupational health and safety.

When they first moved to Carlisle River, the Reids had WorkSafe conduct a free three-hour assessment “because we were employing people and wanted people to be safe”.

They have conducted another two since.

The Reids also pay close attention to Dairy Australia’s People in Dairy-Dairy Safe manual, which has a red, green and orange traffic-light system and “everything that is not in green we need to work on”.

They have also recently engaged a system safety expert to audit their practices.

“I think that is what dairy farmers need. We don’t know it all and that’s what we’ve always done with any part of the business is to work with people that know what they are doing.

“We don’t want them to tell us that we are doing it all right. We want them to tell us where we can do better.”

There’s also a focus on employee engagement with the longest-serving staff member having been with them for 12 years.

Matt said he was proud of the fact that during the industry downturn he did not lay off any staff, which he said would have been an easy option when “things turned to custard in 2016”, and that the business supported five households within the local community.

Looking forward, the Reids have a business case prepared to effectively double their footprint via a lease operation.

“The document sits on the shelf there and we can pick it up and dust it off at any time,” Matt said.

But any future plans must make dollars and sense.

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