Springvale Farm presentation vs1

SPRINGDALE FARM Business Plan IT 1750/95 Vat Nr. 4380154940 J.F. Berning R103 Old Main Road, Rosetta 3310

INTRODUCTION Springvale farm is a dairy farm. We produce milk and in the process provide employment to a number of people in the Rosetta area of kwaZulu-Natal, South Africa.

The Springvale Farm Trust was created in 1995 to start the dairy project.

Further development envisaged is to create a corporate business that will maximize the potential of the property, create a sustainable, profitable dairy enterprise and other related Businesses.

In the light of increasing food requirements by our growing population, we believe it is now an opportune time to invest in agriculture. According to the International Dairy Federation president, Dr Jeremy Hill who recently attended the Global Feed and Food Congress hosted in South Africa, the Food and Agricultural Organization of the United Nations estimates the world demand for animal protein – milk, meat and eggs – will increase by about 50% by 2020 and it is expected to double by 2050!

In order for Springvale to keep up with the trend as predicted and to embrace the huge financial potential this implies, we need to produce more milk. This means increasing the herd size. To achieve this most economically, additional investment in pastures would be required. Without water, this additional pasturage will not materialize. This means that increased irrigation rights will be essential for future development and growth.

HISTORY Springvale Farm was bought by the Berning Family in 1974. From 1953 un>l then the property was a successful horse stud and dairy owned by Harry BarneC. Prior to this the farm was owned by the Groom family. Chris Groom built the main house in 1888. The stone buildings were built prior to this date. They were primarily caCle, sheep and apple farmers. Chris Groom passed on the farm to his son Cuthbert and then on to the next genera>on, Cyril Groom. In 1953 they sold Springvale to Harry BarneC and emigrated to New Zealand. Electricity was laid on in 1942.

Computers were used for the first >me in the farming opera>on in 1983. From 1974 the property changed from a horse opera>on to a beef produc>on opera>on . In the late 1980’s when the profitability of beef diminished, vegetable produc>on was started and the family began inves>ga>ng the viability of a dairy enterprise. This would entail developing an addi>onal area of the property .

The new dairy site in the center of the farm was established in 1993 and the system started as a 12 unit swing-­‐over pit and slowly built up to a 30 unit swing-­‐over. Milk was supplied to Clover in Estcourt. In 2001, the Mansura Farm was leased so as to expand the business. In 2008 a 60-­‐bale rotary parlour was built close to the exis>ng milk plant.

In 2010 Inkwazi Farm was leased to further expand the business. Addi>onal milk was supplied to Orange Grove Dairy in Dundee. Springvale began supplying Bonlé Dairy in Kranskop with milk in 2012. In 2005 a 50-­‐hectare block of land was donated to the Bill Barnes Crane and Oribi Reserve .

We s>ll have usufruct over this por>on, but the piece must remain undeveloped and is used for grazing. The Reserve borders the property and was started by three farmers who donated land for the preserva>on of the endangered WaCled Crane and Oribi and to preserve the habitat of the Highland Sourveld.

LOCALITY

Springvale Farm is situated between the towns of Rosetta and Nottingham Road in the Midlands of KwaZulu-Natal in the Republic of South Africa.

OUR VISION Our vision for Springvale Farm is: 1. To maximize the irrigation potential of Springvale so that cow numbers can be increased to 1,200 cows in milk with an average lactation of 7,000 liters per cow.

To achieve this, additional irrigation rights will be required 2. To breed additional heifers so as to start an additional dairy operation 3. To set up a milk processing plant to enable adding value to the Springvale milk. We plan to create our own label and range of milk products. We envisage converting primary production into a finished product and to market directly to the consumer 4. To start up a bull breeding station and to enter the artificial insemination business with genomically proven pasture type bulls for the South African and African Dairy industry. Selected Beef bulls could also be included into this programme 5. Springvale has a site that was earmarked in 2012 for the supply of quarried stone for the construction of the Springgrove Dam. Geoseismic testing established that there was sufficient material to allow us to set up a quarry enterprise. The site was never developed as the contractor found an alternate source.

6. To acquire more land so as to establish a second and possibly a third dairy operation 7. We envisage expanding the equestrian business 8. To promote an eco-estate land development. The property is ideally situated in an area close to schools, golf courses, housing estates, fishing rivers and dams 9. The KwaZulu-Natal Midlands is one of the most popular venues in South Africa for weddings. We would like to construct a suitable wedding venue that can double as a conference centre. This can also be use for equestrian events.

TIME FRAME Once irrigation rights and funding have been granted, the following plan will be implemented: 1. Three pivot irrigation schemes of 130 hectares, at a cost of approximately R10 million will be installed. Ryegrass pastures will be planted and fertilized optimally 2. Cattle walkways will be upgraded to accommodate the expected 1,200 animals 3. We will retain additional heifers from the spring of 2013 calving season 4. Older heifers will be purchased to fill-in the shortfall in the milking cow numbers 5. The feeding system at the milk parlour will be upgraded 6. Additional staff accommodation will be built 7. We plan to be in a position to milk more cows than at present by the spring of 2014

PRODUCTION With 1,200 cows we can produce 8,400,000 liters of milk annually should the required irrigation with the required irrigation rights be available.

Over the last 12 months, 3,465,865 litres of milk was produced at Springvale.

INFRASTRUCTURE Springvale

Buildings

558 ha total farm area made up as follows: Area (ha) Description 115 Centre pivot irrigation 42 Supplementary irrigation 136 Dryland pastures 25 Land with water impounded in four dams 200 Veld 4 Timber 15 Ouhout indigenous bush 6 Staff accommodation 15 Buildings and roads

Area (sq m) Description 400 Main dwelling 300 Manager’s house 170 Guest cottage 80 Double story manager’s 475 Office and store rooms 100 Tractor and vehicle sheds

Leased land

Equestrian Centre

375 ha total leased area as follows: Area (ha) Description 90 Dryland maize 30 Irrigable pastures 80 Dryland pastures 40 Scrub forest 135 Veld

Area (sq m) Description 344 Stables block 1 210 Stables block 2 376 Stables L block 96 Stallion boxes (6) 14 Oats silo 160 Club house

INFRASTRUCTURE Tractors, Vehicles and Machinery A full range of the above is kept and at present sufficient to carry out the business of milking, feeding and caring for the 1,800 animals currently under our control. Machinery is replaced when needed to maintain efficient working of all aspects of the opera>on.

Bakkies 2010 Mazda 2006 Toyota Implements Feed-­‐out wagon Fer>lizer and lime spreaders 2009 Metasa maize planter Grain drills (2) Mowers (3) Discs (2) sq. m

Bulk feed silos Irriga0on 50 ha Agrico Centre Pivot 40 ha SteCyn Centre Pivot 20 ha Irritech Centre Pivot 37 kw Pump for supplementary irriga>on plus 2 Crawligators 2 Boreholes for dragline supplementary irriga>on 3 Boreholes for domes>c and livestock water 20 concrete water-­‐drinking troughs

Tractors 2012 John Deere 6100 ( 73 kw ) 2012 John Deere 5430 ( 57 kw ) 2010 Foton 254 ( 32 kw ) 2008 Foton 1254 ( 91 kw ) 2007 MF 460 ( 62 kw ) 2006 MF 275 ( 52 kw )

LABOUR The business currently employs 28 permanent staff. This includes senior managers and junior managers, with experience and training in their respective fields. Training courses are arranged regularly.

On-site training and assessment is done every six weeks by an independent consultant. The business is proud of having excellent and dedicated team milkers, calf raising crew, herdsmen, tractor drivers and irrigating crew. The staff turnover is very low. Casual labour is seldom used and we attempt to do all work with permanent staff.

ANIMALS Current stock count = 1,455 animals of all ages.

Our herd is a “closed� herd with good bio-security control. We use AI bulls from Taurus (South African), Genimax (New Zealand) and Cogent (British) semen. We test all our own bulls yearly for contagious diseases and we do genomic testing (done in New Zealand) to ensure we do use the best genes available. We synchronize our herd and have two main breeding seasons, spring and autumn.

MILKING PARLOUR Our dairy employs state-of-the-art technology. We have a Waikato rotary (New Zealand) on a Rockwood table that holds 60 cows and an Afi-system (Israeli) that controls all the data. Each cow is fitted with a pedometer. This sends all the real-time data to the main computer. Cows get fed an individual ration that is formulated by our animal nutritionist, Jane Holiday and Greg Bunge. This ration is balanced with what is available for the cows in the pasture.

The following is an extract from the AfiFarm management data sheet:

“AfiFarm is the world’s most comprehensive management software for advanced dairy farming and herd management. S.A.E. AfiMilk's sensors gather real-time information. An extensive animal database is built and information is matched against it. Exception reports provide the dairy farmer with decision making tools for both short term tactical and long term strategic decisions related to an entire herd and individual cows.

The main features of the herd management module are: · Daily breeding reports and general fertility analysis. · Health monitoring. · Milking efficiency reports. · Automatic generation of veterinary check lists based on parameters. · Easy to report veterinary visit results, including diagnosis, drugs, treatment, schedules and recheck. · A cull planning model. · Herd

FEEDING The feeding is pasture-base with supplementary concentrate feeding as required. We have ryegrass, kikuyu and mixed pastures that are monitored by the “Fourth Quadrant�, a computer program to optimize grazing. We measure the pasture quantity and quality on a daily basis. The better the grass management, the better the cows perform. We have a minimum-till system and make use of foliar feeding to optimize soil fertility which ensures a sustainable pasture environment.

Minimum tillage is practiced to build up the soil’s organic matter.

Maize for silage is grown off-farm and used to supplement the herd when home-grown feed is in short supply. This is normally during the cold winter months.

FACILITIES Our calf pens house 200 animals in individual and in group pens. We raise all our own heifer calves. Our calf mortality rate is less than 1% while across the herd, mortality is less than 3%. We practice an intensive vaccination program as we believe that prevention is better than cure. Â The farm has an equestrian center, consisting of 60 stables, a club house, a sand dressage arena and two grassed jumping arenas.

STUDY GROUP The business is part of a study group with the aim of comparing production costs. Generally the group is focused on long-term sustainability and profitability . Visits to other farms are done monthly to keep management focused on the task at hand. Every other year we go on a tour to different places – recently New Zealand, Kenya and Southern Cape.

STRENGTHS 1. We have well trained and experienced managers. James Berning is an excellent and experienced pasture authority and has an agricultural degree. Andrew van der Walt is a reproductive specialist with a doctorate in reproductive science.

2. Water resources are plentiful. We have access to large dams and have boreholes installed.

3. Deep well-drained soils make up the majority of arable lands.

4. Well trained staff are ready to take on any expansion projects.

5. We are close to major markets and on good road networks ( R103 & N3 ) 6. Rainfall is high. It averages about 1,000 ml per annum.

7. Bio control for animal disease is good, due to cold winters.

8. The Springvale herd has been a closed herd for many years.

9. Buildings and sheds are plentiful. Major capital expenditure has been saved for future development.

10. A well-equipped dairy shed with a 60 bale rotary parlour and computer back-up to milk 1,200 cows is already in place.

11. We have access to well-establish milk processors. Orange Grove Dairies, BonlĂŠ and Clover are all available to Springvale to purchase and process our product.

FINANCIAL BUDGET We have compiled and include here a 12-month dairy budget for the dairy operation on Springvale. The figures are largely based on our past 12-month performance but incorporating an average of 1,005 cows in milk. This would equate to an average of approximately 1,200 cows in herd and about the same number of followers of various ages.

Figures are expressed in rands per month and analysed in terms of rands per cow in herd and cents per litre sold.

The budget only allows for income from milk and livestock sales. Any additional incidental income has been excluded.

Milk production per cow has a marked effect on the gross income. At an average of 17.02 litres per cow in milk daily, annual milk production is expected to be approximately 6.2 million litres. At the weighted-by-volume expected farm gate milk price for the period of the budget of R3.81 per litre, the turnover from milk sales is budgeted to be R23,764,266 per annum or an average of R1,98,355 per month. This equates to R1,655 per cow in herd (CIH) monthly, which compares favourably with various study group results.

The budgeted gross margin is R937.12 per cow in herd monthly or 215.7 cents per litre, again in the top third of study group financial performance results. In terms of net farm income, which includes neither capital costs, new fixed improvements or interest and debt redemption, Springvale’s budget is particularly healthy at R588.54 per cow in herd monthly or 135.5 cents per litre. This is well above the net farm income recorded by study groups in our area.

The farm bottom line too is better than that of study groups at R366.57 per cow in herd monthly or 84.4 cents/litre of milk sold.

SENSITIVITY We have compiled and include here a 12-­‐month dairy budget for the dairy opera>on on Springvale. The figures are largely based on our past 12-­‐month performance but incorpora>ng an average of 1,005 cows in milk. This would equate to an average of approximately 1,200 cows in herd and about the same number of followers of various ages.

Figures are expressed in rands per month and analysed in terms of rands per cow in herd and cents per litre sold.

The budget only allows for income from milk and livestock sales. Any addi>onal incidental income has been excluded.

Milk produc>on per cow has a marked effect on the gross income. At an average of 17.02 litres per cow in milk daily, annual milk produc>on is expected to be approximately 6.2 million litres. At the weighted-­‐by-­‐volume expected farm gate milk price for the period of the budget of R3.81 per litre, the turnover from milk sales is budgeted to be R23,764,266 per annum or an average of R1,98,355 per month. This equates to R1,655 per cow in herd (CIH) monthly, which compares favourably with various study group results.

The budgeted gross margin is R937.12 per cow in herd monthly or 215.7 cents per litre, again in the top third of study group financial performance results. In terms of net farm income, which includes neither capital costs, new fixed improvements or interest and debt redemp>on, Springvale’s budget is par>cularly healthy at R588.54 per cow in herd monthly or 135.5 cents per litre. This is well above the net farm income recorded by study groups in our area.

The farm boCom line too is beCer than that of study groups at R366.57 per cow in herd monthly or 84.4 cents/litre of milk sold.

Once the cow numbers have been increased to the level that the available pasture area can sustain, production per cow in milk has the biggest effect on profitability.

Should the milk production increase by one litre per cow in milk daily (this is 5.88% on the budgeted production level), the net farm income will increase by 16.55% from R 588.54 to R 685.93 per cow in herd monthly after an allowance for extra concentrates to support the milk production increase.

Table 1 looks at the effect of milk production per cow in milk daily on the farm financial performance. Two scenarios are reported: a.  the concentrate usage in kilograms per cow daily remains unchanged and b. The concentrate usage in grams per litre is constant at 315 grams per litre. The latter is the more realistic scenario.

The price of dairy meal has a marked effect on dairy profitability. Table 2 shows the effect on gross margin and net farm income of various increases in the price of dairy meal over the course of the twelve months of the budget.

SUMMARY The logical way forward for Springvale Farm is to develop the existing dairy to its maximum potential. This would mean developing irrigated pasture area so as to produce more milk off grass – the most profitable way to produce milk in KwaZulu-Natal.

Springvale can profitably support a 1,200-cow dairy herd primarily off of grass provided water rights for the additional grazing area can be secured. The required infrastructure, manpower and management to expand the herd to this level is already in place.

Additional enterprises (quarry, milk processing and packaging and other) would add to the profitability of the farm and make full and sustainable use of available resources.