Positioning Your Dairy
Farm Business for a Profitable Future - An Australasian Perspective
Positioning Your Dairy
Farm Business for a Profitable Future - An Australasian Perspective
Ian J.
Lean
Department of Animal Science,
University of Sydney,
Camden, NSW, Australia, 2570.
E-mail: ianl@doolittle.vetsci.su.oz.au
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Australasian dairy production is favored by
excellent climates, temperate pastures and, in parts, access to low-cost commodities resulting in a
lower cost of production.
Poor production efficiency can result if quota
systems are rigid, but some supply management is beneficial to producers, especially if market
signals are ignored under production driven systems.
The challenge facing the smaller farm worldwide
is to expand or improve performance in the face of falling prices for milk.
Farms that survive will perform better than their
peers by managing rather than doing, by improving nutritional management of the herds, and by
adapting to change.
For Canada to gain a larger portion of the
international market Canadian dairy products will need to be unique or of superior quality.
Introduction
Dairy farming in Australasia, that is Australia and New Zealand, is conducted under a wide range
of climatic conditions and under differing economic constraints. These factors make a simple
comparison with Canadian dairy farming misleading. Dairy production is largely confined to areas
which are favored by higher rainfall and better soils (Figure 1). Although each of the states in
Australia maintains its own dairy industry, the industry is dominated by the southern dairy
industry, in particular Victoria, which produces 62% of the total milk. Only 13% of the milk
produced in Victoria is used for whole milk consumption; the majority is used in the manufacture
of cheese, butter, and milk powder. Overall, only 27% of milk produced in Australia is diverted to
market milk.
The milk production characteristics of New Zealand are very similar to those of Victoria. Milk
production in Australasia, while small relative to world production, allows export of
approximately 31% of the world market (Figure 2) (1), the bulk coming from New Zealand.
Dependence on the world market ensures that there is a focus on a low cost of production,
although a better emphasis would be on cost-effective production. The relative efficiency of
production is indicated in Figure 3, which shows farmgate costs of production for the different
international dairy industries. Within this general framework, however, the states of New South
Wales (NSW), Western Australia (WA), and Queensland (QLD) which supply 80% or more of
production for whole milk consumption receive returns for market milk similar to those of
Canada. Figure 4 shows the different costs of production for the Australian states.
This paper will discuss the advantages and disadvantages, challenges, and economics of the
different production systems of Australasia (Table 1)
(Click here to view Table 1). and compare these to those in Canada.
Potential areas for future development to improve the cost-efficacies of the industries will be
discussed.
These regions have highly predictable rainfall (32-38 inches) and a temperate climate that favors
the growth of pastures of high digestibility (often greater than 70% digestible) containing high
concentrations of crude protein (often greater than 25%). Compared to Canada in the winter, the
climate is idyllic, god is in his heaven, and all is right with the world!
Dairy farming in these temperate regions is largely based on the need to harvest ryegrass (Lolium
perenne) and clover (Trifolium sp) pastures. Detailed descriptions of the system have been
provided by Trigg and Bryant (7), Wilson and Davey (8), Holmes and Macmillan (3), Holmes and
Wilson (4), Lean (6), Kellaway and Porta (5).
Prevailing understandings of the production system drawn from these texts and others may be
summarized as:
supplementary feeding was not deemed to be
profitable, because well conducted field trials failed to demonstrate a milk production response
much greater than one litre per kg of feed and a kilo of supplementary feed was more costly than
one litre of milk (5).
given the above, strategies were designed to feed
only pastures and low cost crops.
pasture utilization strategies were designed to
account for the fact that other feeds could not be utilized.
stocking rates were held to a level that allowed the
recovery of weight lost in early lactation from pasture grown in autumn/ winter or that could be
purchased by grazing-off (feeding cattle on another near-by farm).
use of nitrogen fertilizer, initially considered too
costly, increased as milk prices increased.
genetic merit of cattle was not realised. Cattle
were grown to sizes much lower than their phenotypic potential and fed below appetite.
dry matter intake of the average 450 kg cow
producing 3750 litres is approximately 2.85% of bodyweight over the potential 300 day milking
period.
in New Zealand, approximately 25% of lifetime
feed intake is directed towards milk production, while in high producing cattle in Canada and the
USA approximately 45 to 50% is directed towards milk production.
it is assumed that pasture is the cheapest source of
feed (and it often is).
all feeds are treated as equal - assessed on a kg of
dry matter basis.
average lactation length in New Zealand is 230
days (longer in Victoria) and up to 66% of lactational production is achieved in the first 120 days
of lactation.
milk quality deteriorates in late lactation.
cows in Victoria are now fed up to 0.75 tonnes of
cereal grain per lactation, while in New Zealand and Tasmania much less is fed. The change in
feeding patterns in Victoria has only occurred over the past 7 to 10 years.
Key criteria that determine economic performance include
Tight calving patterns (all cows calved over an 8
to 12 week period) - these are essential and must be effectively matched with pasture growth.
Appropriate stocking rates - these should be high
enough to ensure that pasture is efficiently harvested and may significantly depress per cow milk
production.
Use of fertilizers to maintain pasture growth and
soil fertility.
There is an increasing trend towards the use of supplementary feeds, especially in Victoria. It is
likely that this trend will continue in the future as more sophisticated understandings of the
pasture/ supplement interface are achieved. This change in supplementary feeding has lead to a
decreased emphasis on production per hectare as the prime determinant of profit and increased
emphasis on returns to capital, in New Zealand calculated as Effective Farm Surplus (see Table
2), (Click here to view Table 2). to determine economic efficiency. This Table also details average New Zealand performance.
Tables 2 and 3 (Click here to view Table 3). provide some examples of EFS, from New Zealand and Victoria. It is interesting to
note similarities between these and contrast them with the data from the New South Wales herd
(Table 4). (Click here to view Table 4). The data comes from a herd where a sharemilker was employed and the wages have
been adjusted to reflect the return to the enterprise after a standard labour component has been
estimated.
Capital development on the farm in New Zealand, Victoria, and Tasmania is typically extremely
low, with buildings associated with the farming enterprise limited to milking shed, often of very
simple design, and a hay / machinery shed. Milking is very efficient, in terms of cows milked per
labour unit per hour since milk yields per cow are relatively low. Rotary parlors and herringbone
sheds are common and there is minimal udder preparation prior to milking. There is however, a
marked increase in the capital costs of land in New Zealand, up to $NZ20,000 per acre, resulting
in a high capital cost system with low variable costs.
The production efficiencies achieved through this system have resulted in an extremely low farm
gate cost of production (see Figures 3 and 4). There are post-farm gate inefficiencies that result
from the vast flood of milk that comes in spring and the relative paucity of milk in the winter. In
particular, the investment in processing plants by dairy companies is substantial, to handle the
spring surplus. These production systems tend to be supply- rather than demand-driven.
Consequently, there is a great downward pressure on the value of the product which has to be sold
on the world market where prices are low.
For the medium-sized farmer (150 cows), the major challenges include:
a constant reduction in real returns for product.
increasing costs of inputs including labour,
fertilizers and water.
increasing emphasis on waste utilization and
environmental protection, in particular concerns about waste effluent and fertilizers.
a need to improve milk quality.
a need for the more sophisticated management
required to integrate pasture and concentrate systems.
Some of these challenges result in a need to increase the number of cows milked. There are
questions that need to be resolved about the optimal number of cows milked on pasture, since
large numbers of cows can be difficult to manage on pasture.
These areas are greatly favored by their environment. They have the potential for very high
producing herds with extremely low costs of production once there is an effective integration
between the management of pasture and the management of supplementary feeds. Provided that
world trade is conducted on a more equitable basis, in terms of a reduction in subsidies and
non-tariff trade barriers, these areas will remain major centres for the export of dairy products.
Dairy Production
in Non-seasonal Calving Areas of Australia (New South Wales, Queensland, Western Australia)
The dairy farming regions of NSW, QLD, and WA are less favored by predictable rainfall than the
southern dairy industry and are more subject to drought. The industry is based more on whole
milk sales and costs of production are higher than Victoria and New Zealand (see Table 4)
(Click here to view Table 4). . Part of
these higher costs, an estimated two to three cents per litre, is attributable to the need to produce
whole milk over the entire year. To ensure that milk is available all year round, quota systems
have been used to manage milk supply.
Milk production levels have increased rapidly over the past few years and NSW now has the
highest producing cows in Australasia, with an average well over 5000 litres per cow and some
herds with considerable pasture inputs exceeding 9000 litres over a 300 day lactation. It is
interesting to note the similarities between costs of production in California with those in NSW
(Figures 3 and 4). Total costs are very similar, but feed costs are lower in NSW. Labour costs are
higher in NSW, undoubtedly because of the relatively low herd size. The average herd size in
NSW is still only 110 cows. There is a fairly rapid increase in farm size towards 150 cows and a
change towards more efficient milking practices, but there are still a large number of walk-through
(flatbarn) sheds.
The farms generally have greater capitalization than Victoria and New Zealand, with more capital
invested in buildings, quota purchase, and particularly in irrigation systems. These levels of
capital investment are modest, however, compared to the costs of housing cattle in Canada. Equity
levels for farmers appear to be high with farmers estimating their equity to be greater than 85%
(Webster et al. 1996) and stocking rates are low. The prevailing system may be described in the
following terms:
production is geared towards market milk (milk
and short-shelf life products), which is 82% of NSW production. Milk is produced all year round
and there is not a marked seasonal difference in production.
the farms are relatively large (average 159 HA)
and are lightly stocked, because farmers have purchased land to enable the cows to be fed
approximately 70% of their diet as pasture in the winter months
on many farms, about 50% of dietary energy intake
comes from supplements. Major grain producing areas are close by and grain can be cheap
($A60-100 ex-farm) under favorable conditions. There is an increasing awareness of byproduct
feeds and use of these is increasing.
on an increasing number of farms there is a
sophisticated integration of pasture with supplement resulting in the development of "semi-mixed
rations", which include conserved forages, byproducts, protein meals, and grain in a mixed ration.
the cows are much bigger than in Victoria and
New Zealand, produce for 300 days (or more if not in calf early enough).
many farms are operating below optimal efficiency
because of a rigidity of management that resulted during a period when quota milk allocations
were fixed and ready exchange of quota was not possible.
the industry is widely dispersed, leading to
increased infra-structure costs and a difficulty with the "over the fence" methods of technology
transfer.
Farms that are successful under this system optimize production per hectare, and production per
cow.
For much of NSW and QLD, temperate grasses such as rye (Lolium sp) and clover (Trifolium sp)
grow well, but in summer these are invaded by C4 species such as kikuyu (Pennisetum
clandetinum) and paspalum (Paspalum dilatatum). The latter are much less digestible (by
approximately 10%), but produce vast amounts of feed, up to 25 tonne of dry matter per HA for
well managed kikuyu.
Keys to good, profitable performance are:
the efficient production of large amounts of
pasture, by careful use of fertilizers, concentrates, and usually irrigation.
the efficient harvest of the pasture resulting in high
utilization rates by high stocking rates, effective conservation strategies, and well balanced rations
using supplementary feeds.
high per cow production from well grown heifers
(550 to 580 kg at herd entry) and by optimizing dietary balance within the constraints imposed by
pasture. Production levels approach and will soon pass Canadian levels.
maintaining efficient reproductive performance.
There are significant challenges facing the NSW and QLD industry as farmers increase towards
150 cows per herd and more including:
instability in the market. The constant threat of being
"attacked" by the much larger supply-driven Victorian industry is a concern for many farmers.
These factors lead to an unwillingness to assume debt.
the constant reduction in real returns for product.
increasing costs of inputs including labour,
fertilizers, and water.
in many areas urban encroachment and higher land
values threaten farm survival and impede expansion of the farm. Water for irrigation is limited in
some areas.
a major challenge is to move from an operator role
to a manager role. Many do not relish the need to manage other labour.
increasing emphasis on waste utilization and
environmental protection, in particular concerns with regard to waste effluent and fertilizers.
a need for the more sophisticated management
required to integrate pasture and concentrate systems.
in this industry very few have formal education
beyond 16 years of age. While this may not be unique to this industry, it may be a problem as
dairying becomes more sophisticated and new technologies emerge.
a need to integrate larger herds with pasture and
still be cost-effective.
there is a very limited pool of skilled labour.
These producers, like those in southern Australia and New Zealand are favored by a suitable
climate. The strong environmental lobby in Australia and New Zealand is applying pressure on
farming that will increase the need to address the impacts of dairy farming on the environment.
The industry has been responsive and it is likely that the application of sensible strategies to
handle green concerns will be both environment-friendly and profitable.
Canadian
Comparisons
Milk is always, to some degree a local issue with, in my experience, a similar range of farmer
expertise within a given region. Efficiency of production, on a world basis is only relevant when
production is largely geared towards export. The obvious differences between Australasia and
Canada are in the climate and in the size of the herds. The Autralasian climate is very favorable
for the efficient production of milk at very low cost and at relatively sound margins. Returns to
capital of 20 to 30% are possible.
There are obvious similarities of challenge for individual producers in regard to the management
of herd expansion. The high capital inputs required to house cattle in the northern USA and
Canada place these producers at an international disadvantage for manufactured product, but have
little relevance for local production. To compete on the international market the Canadian
producer will have to achieve greater efficiency of feed conversion, greater efficiency of labour use,
and obtain lower cost inputs. I do not readily see that these can be achieved at a pace greater than
that which will be achieved in Australia. Therefore, the producer will need not only to be efficient,
but will need to rely on product differentiation in the marketplace to achieve or maintain
international market share. For the individual farmer, however, the challenges in all production
systems are similar:
improve performance or fail.
manage rather than do and improve people
management skills.
concentrate on the acquisition and application of
knowledge.
The external threats to any dairy industry will generally only cause change over relatively long
periods of time and will most influence the value of manufacturing milk. Industries such as those
in southern Australia and New Zealand are most exposed to these impacts. Those farmers within
each production system that adapt best will survive and prosper, because of the requirement for
the foreseeable future for fresh, whole milk.
References
1. Anon (1994) Australian Dairy Industry Compendium.
Publ. Australian Dairy Corporation, Melbourne.
2. Bryan, A.M. and C.W. Holmes. (1985) Utilisation of
pasture on dairy farms. In:The Challenge: Efficient Dairy Production. Ed.Phillips, T.I. Publ.
Australian and New Zealand Societies of Animal Production, pp 48-63
3. Holmes C.W. and K.L. Macmillan. (1982) Nutritional
management of the dairy herd grazing on pasture. In: Dairy production from pasture. Ed.Phillips,
T.I. Publ. Australian and New Zealand Societies of Animal Production, pp 244-275.
4. Holmes, C.W. and G.F. Wilson. (1984) Milk
production from pasture. Publ Butterworths, New Zealand.
5. Kellaway, R.C., S. Porta. (1994) Feeding
Concentrates. Published Dairy Research and Development Corporation, Australia. pp 43-92
6. Lean, I.J. (1986) Nutrition of Dairy Cattle. Publ.
University of Sydney Postgraduate Committee in Veterinary Science. 420pp
7. Trigg, T.E. and A.M. Bryant. (1982) Nutrition of the
grazing cow during early lactation. In: Dairy production from pasture. Ed.Phillips, T.I. Publ.
Australian and New Zealand Societies of Animal Production, pp 219-236
8. Wilson, G.F. and A.W.F. Davey. (1982) Nutrition of
the grazing cow: mid and late lactation. In: Dairy production from pasture. Publ. Ed.Phillips, T.I.
Australian and New Zealand Societies of Animal Production, pp 219-236.
