WHY BIGGER NUMBERS DON'T ALWAYS MEAN BIGGER PROFITS: Lessons From A Volatile Dairy Market
In volatile markets, higher output does not automatically mean higher profitability. The most successful businesses often focus less on production volume and more on the value created by every unit produced.
For many years, success in agriculture has often been associated with bigger numbers.
More acres.
More livestock.
Higher yields.
Higher output.
Greater production.
Yet recent analysis of the UK dairy sector highlights an important reminder:
More production does not automatically mean more profit.
The latest Milk Cost of Production report from Old Mill Accountants and the Farm Consultancy Group presents a fascinating snapshot of a sector that has experienced both strong profitability and significant volatility. Average production costs were reported at 42.38p/litre against total income of 54.81p/litre, resulting in profits of 12.43p/litre, more than double the five-year average.
On the surface, those figures appear encouraging.
However, the story beneath the headline is far more revealing.
The Danger Of Averages
Averages can be useful.
But they can also be misleading.
The report highlights significant differences between businesses, systems and levels of performance. While some producers achieved strong profitability, others experienced losses despite operating within the same market environment.
Most strikingly, the report found:
There was no direct correlation between milk yield and profit.
That may seem counterintuitive.
Surely more milk means more profit?
Not necessarily.
Because every additional litre also has a cost attached to it.
Output Versus Profitability
It is entirely possible to produce more and earn less.
Additional output may require:
- More purchased feed.
- Higher energy consumption.
- Additional labour.
- Increased machinery costs.
- Greater infrastructure demands.
If these costs exceed the value created by increased production, profitability can fall despite higher output.
As the report notes:
"Extra litres can be expensive to produce."
That observation applies far beyond dairy farming.
More production does not automatically mean more profit.
The Top 10% Think Differently
The report compares the top-performing 10% of dairy businesses with the bottom-performing 10%.
Interestingly, the difference was not simply about scale or system.
The top performers achieved:
- Similar levels of production.
- Better milk prices.
- Lower costs.
- Stronger technical performance.
The result was a profit of 24.31p/litre, compared with a loss of 2.56p/litre in the bottom-performing group.
The lesson is important:
Business performance is often determined as much by cost control and decision-making as it is by production.
A Lesson For All Rural Businesses
Although this analysis focuses on dairy farming, the principles apply across the rural economy.
A diversification project can generate more revenue while reducing profitability.
A larger machinery fleet can increase capacity while reducing return on investment.
A growing business can experience greater turnover whilst creating additional stress and risk.
Growth is not always progress.
The important measure is not activity.
It is value creation.
Volatility Is The New Constant
What makes the dairy report particularly relevant is that it highlights how quickly circumstances can change.
The strong profits reported relate to the year ending March 2026. Since then, businesses have faced falling milk prices and challenging weather conditions. The report suggests profits during 2026/27 could fall significantly, to around 3.96p/litre, creating a very different financial picture.
This reminds us that:
A good year does not eliminate the need for strategic thinking.
Periods of profitability often provide the best opportunity to strengthen resilience before conditions become more difficult.
Questions Worth Asking
Every business owner occasionally benefits from stepping back and asking:
Which activities create the most value?
Which costs are increasing fastest?
Are we measuring output or profitability?
Where do we genuinely outperform?
What would happen if market conditions changed tomorrow?
These questions are often more valuable than any single financial figure.
Final Thought
In farming, bigger numbers attract attention.
Higher yields.
More litres.
Larger turnovers.
Greater output.
Yet the strongest businesses are often the ones that understand a simple principle:
Performance is not about producing more. It's about creating more value.
Profitability, resilience and long-term success are rarely determined by a single number.
They are determined by understanding how all the numbers fit together.
And that is often where the most important business decisions begin.
Editor's Reflection
One of the most useful habits any business can develop is distinguishing between:
✅ Activity
and
✅ Performance
They are not always the same thing.
Sometimes the most profitable decision is not producing more.
Sometimes it is producing better.
Source: Old Mill Accountants and Farm Consultancy Group Milk Cost of Production Report, reported by Society of Agriculture.
