Factors associated with profitability

in pasture based systems of milk

production L. Hanrahan1,2, N. McHugh1, T. Hennessy3, B. Moran3, R. Kearney1, M. Wallace2, L. Shalloo1

1Teagasc, Animal & Grassland Research & Innovation Centre, Moorepark, Fermoy, Co. Cork 2School of Agriculture & Food Science, University College Dublin

3Agricultural Economics Department, Rural Economy and Development Programme,

Teagasc, Athenry, Co. Galway

Background Policy change

• Milk quota abolition

Milk price volatility

Requirement for resilient systems

Objective

• Evaluate factors associated with efficiency and profitability

» Develop key performance indicators to direct industry efficiency into the

future

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0.2

0.25

0.3

0.35

0.4

0.45

2005M11

2006M02

2006M05

2006M08

2006M11

2007M02

2007M05

2007M08

2007M11

2008M02

2008M05

2008M08

2008M11

2009M02

2009M05

2009M08

2009M11

2010M02

2010M05

2010M08

2010M11

2011M02

2011M05

2011M08

2011M11

2012M02

2012M05

2012M08

2012M11

2013M02

2013M05

2013M08

2013M11

2014M02

2014M05

2014M08

2014M11

2015M02

2015M05

2015M08

2015M11

2015M12

2016M03

2016M06

2016M09

M

i

l

k

P

r

i

c

e

€

/

l

Period

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

Farm Efficiency Profit variables (€/ha, €/kg MS) Management variables Fixed variables

Gross output Grass utilisation (kg DM/ha) Year

Variable costs Stocking rate (LU/ha) Region

Gross margin Grazing season length (days) Soil type

Fixed costs Proportion of purchased feed Discussion group (y/n)

Net profit Milk production Milk recording (y/n)

3

National Farm Survey

• Specialist dairy farms

• 8 years data (2008 – 2015)

• Multiple Regression Analysis

Description of National Farm Survey dataset

using the mean of a range of biological and

financial variables

YEAR n Cow

Numbers

Dairy

Forage

ha

Stocking

Rate

(L.U./ha)

Farmer

Age

Proportion

Purchased

Feed

Net

Profit

(€/ha)

Net

Profit

(€/kg

MS)

Pasture

Utilized

kg DM/Ha

Protein

%

Fat

%

Kg

MS/

Ha

2008 256 56.5 30.1 1.89 51.3 0.23 964 1.49 7,605 3.36 3.83 626

2009 228 56.5 29.7 1.91 49.9 0.22 221 0.28 6,951 3.35 3.84 592

2010 239 56.3 30.0 1.88 49.6 0.21 830 1.18 7,796 3.34 3.86 679

2011 262 65.7 34.7 1.91 49.8 0.18 1,297 1.79 7,890 3.37 3.90 708

2012 253 66.9 35.8 1.90 52.2 0.23 805 1.09 7,776 3.39 3.93 695

2013 246 67.7 34.1 2.02 52.8 0.27 1,290 1.67 7,814 3.38 3.96 754

2014 263 68.9 34.1 2.07 52.8 0.22 1,390 1.74 8,426 3.42 3.99 787

2015 308 70.2 35.3 2.06 48.8 0.21 1,165 1.37 8,910 3.50 4.03 831

Farm Efficiency

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Net profit (€/ha) Production costs (€/kg MS)

Estimate S.E. P - value Estimate S.E. P - value

Grass utilisation (t DM/ha) 173 6.0 < 0.001 - 0.06 0.008 < 0.001

Grazing season length (days) 1.85 0.45 < 0.001 - - NS

10% increase in the

proportion of purchased feed - 96.5 13.7 < 0.001 0.27 0.016 < 0.001

Milk protein (%) 191 97 < 0.05 - 0.42 0.1 < 0.001

Milk solids yield (kg/cow) 3.26 0.18 < 0.001 - 0.004 0.0002 < 0.001

Non-significant factors

• Herd size, farmer age, fat (%)

Year, region and soil group – significant factors across all dependent

variables

Conclusions

Grass utilisation is a key driver of farm profitability

Expansion based on purchased feed reduces profitability

Farm efficiency drivers applicable across all soil types

Develop a resilient farm system to remain consistently profitable

Use appropriate financial metrics for business evaluation

Investments should be prioritised to maximise return

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