the economics of dairy production systems – a comparative approach
TRANSCRIPT
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ESADA 2015
The Economics of Dairy Production systems – A comparative approach
Presented by:Dr. Amit Saha
IFCN, Dairy Farm Analysis
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Agenda
1. Milk prices
2. IFCN concept
3. Dairy farming and typical farms
4. Cost competitiveness
5. Summary
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World milk price & its volatility
Monthly data 2006 - 2015
Combined IFCN world milk price indicator: weighted average of 3 IFCN world milk price indicators:
1. SMP & butter (35%)
2. Cheese & whey (45%)
3. WMP (20%)
Shares are based on volumes traded on the world market.
J 06
M 0
6S
06 J 07
M 0
7S
07 J 08
M 0
8S
08 J 09
M 0
9S
09 J 10
M 1
0S
10 J 11
M 1
1S
11 J 12
M 1
2S
12 J 13
M 1
3S
13 J 14
M 1
4S
14 J 15
M 1
5S
15
0
10
20
30
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in U
S-$
/ 100
kg
ECM
4%
fat,
3,3%
pro
tein
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National milk prices driven by world price
Source: D3.4 - IFCN Monthly real time data
Germany BrazilMilk prices in ZAR/100 kg ECM Milk prices in USD/100 kg ECM
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National milk price
Combined IFCN world milk price indicator
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National milk price
Combined IFCN world milk price indicator
South Africa
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Mission: We create a better understanding of the dairy world by providing comparable data, knowledge and inspiration.
IFCN - The Global Dairy Research Network
The network approach – of a three pillars - the network of researchers, - the network of companies/institutions and - the IFCN center with > 15 dairy economists.
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Research partners in 100 countries
Status of the IFCN Network in 2015
Supporting partners (> 100)
Institutional partners
55 Countries where we collect farm economic data & country data 45 Countries where we collect country profile data
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Activities in the
different months of the year
IFCN - An ongoing knowledge creation system
IFCN Dairy ConferenceIFCN Supporter Conference
Data collection, validation & analysis
Kick off meeting KielIFCN Regional Workshop
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Source: IFCN database
Where are the farms located?Number of dairy farms 2014, incl. estimates
Source: D3.2 - Dairy Sector Analysis with Base Line Projection 2025
Total number of dairy farms in 2014: 121.5 million+ 1% increase vs 2013
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Ø farm size world: 2.9 cows
13 countries with Ø farm size >100
Countries with Ø farm size >100: DK, GB, CZ, CY, AR, UY, US, AU, NZ, SA, IL, ZA, TW
Source: IFCN database
difference of margin over compound feed cost to boundJanuary 2015 in %
>15%>-15% <= 15%
<= -15%no data
What is the average farm size in the world?Milk animals per farm 2014 (cow & buffalo)
Source: D3.2 - Dairy Sector Analysis with Base Line Projection 2025
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Farm ownership & their key drivers
Smaller farms - Household farmsKey characteristics: Small farms 1-3 cows, dairy is one income source,
50% of the milk is consumed on the farm, 50% sold.Key driver: Selling milk provides daily cash for family needs.
Medium size farms - Family farms Key characteristics: Work is mainly done by the family,
Size in developed countries 10 up to 100/300 cows?Key driver: Generate an income.
Larger farms - Business farmsKey characteristics: Work is mainly done by employees,
Size in developed countries > 300 cows?Key driver: Generate the expected ROI.
© IFCN 2015 for internal use
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A typical dairy farmrepresents the largest number of dairy farms in a region in terms of
• Herd size • Land size• Feeding system• Labour organisation• Technology used
The main objectives of typical dairy farms
• To have at least two (and up to six) typical farms for each region. • The first farm is an average sized farm with an average management performance. The second
farm is larger than the first one but also having an average management performance, to show economies of scale.
• They represent major milk production systems, farms, milk produced in region.
The typical farm approachit is a strong method + brings fast results
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The typical farm approachit is a strong method + brings fast results
IFCN approach of defining what is typical helps all to
understand a complex reality
Illustration of dairy farms in a region
Farm type 1 represent 40 % of the farms 25 % of the milk
Farm type 2 represent 25 % of the farms 45 % of the milk
1. Defining what is typical
2. Collect data
3. Validate data
4. Validate results
6. Feedback from dairy
stakeholders
5. Publish results
Next year
improve steps
1-5
© IFCN 2015 for internal use
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Countries where IFCN Typical farms are analyzed
Cost
55 Participating countries representing 91% of world milk production (cow+buffalo)=704 Mill Ton ECM
US-1000IDUS-5000ID
US-80WIUS-500WI
IN-4NIN-20N
IE-67IE-116
Legend:
CN-340BECN-1689N
Methodology of IFCN Farm Comparison 2014
Some examples of Typical farms
US-1000ID: USA Typical dairy farm with herd size of 1000 cows in Idaho (ID) region
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Understanding costs of milk production Germany–Comparison of 3 typical farms
Cost of milk production Return to labour
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ID
SE
S
SE
NYWI
JATO N
Cost
Cost of milk production only in average sized farms in 2014
Cost level of farms in region where shade is placed
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Cost trend analysis of farms from the major milk producing regions 2000-14
Germany, USA, Poland Argentina, Brazil,China, New Zealand
• Costs in the US,DE, PL have consolidated on a level between 40 and 50 US$/100 kg ECM
• Costs in BR, NZ, AR are moving towards the 40 US-$ mark
• Milk production costs in China are stable at around 60 US$/100 kg ECM
• Higher efficiencies thru structural change helps in cost consolidation in the Europe, US
USA: 18.98 US-$/ CWT
43.9 US$/100KG ECM
Source: D5.1 Farm Economics Analysis
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Typical Average Farm Types in Africa
North AfricaDZ-6: Household farm from North central region, Algeria. HF, Simmental, Montbeliarde breeds with 5 hectares of land, 60% for dairy. Average milk yield of 3384 kg ECM/year.TN-4: Family farm from North Tunisia region. HF breed cows with 2 hectares of land. Average milk yield of 6853 kg ECM/year. 50% of land used for dairy.
East AfricaET-3: Family farm from Oromia region, Ethiopia. Cross of HFx Zebu with 8 hectares of land.Average milk yield of 2872 kg ECM/year.UG-3: Family farm from Lyantode district, Uganda with 2 ha land. Local Ankole breed mainly for beef with average milk yield of 696 kg ECM/year. No housing, only a fence. Mostly grazing on common pasture lands by village herdsman. No concentrate supplementation.
South AfricaZW-45: Family farm from midlands region, Zimbabwe. HF cows with 435 hectares of land. Average milk yield of 4636 kg ECM/year.ZA-520: Business farm from Kwazulu natal region, South Africa. HF cows with 269 hectares of land. Average milk yield of 5777 kg ECM/year.
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Status of milk production in Africa 2014 Only 27% of African milk reaches processors
Milk production (cow + buffalo) (mill. tons) 38.2
Proportion of milk delivered (%) 27.3%
Total population (billion) 1.3
Per capita consumption (kg ME/year) 50
Self sufficiency in milk production 88%
Number of dairy farms (million) 12.9
Average farm size (cow/buffalo/farm) 5.3
Average milk yield (kg ECM/cow/year) 556
IFCN country data
IFCN farm partner
Country codes: East Africa: ET Ethiopia; UG Uganda. North Africa: AM Armenia; DZ Algeria; EG Egypt; MA Morocco; SD Sudan; TN Tunisia. South Africa: MW Malawi; ZA South Africa; ZW Zimbabwe. West Africa: CM Cameroon
MA-3NMA-8N
DZ-6DZ-18
TN-4TN-12
EG-5EG-10
SD-20SD-117
ET-3ET-50
CM-35CM-50
MW-1MW-6
ZW-45ZW-360
ZA-520ZA-630
UG-3UG-13
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Farm Types in Africa
Farm size (Number of cows)
North East South
Milk yield (kg ECM/Cow/year)
North East South
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Cost Competivenessaverage sized farms per country in 2014
Cost of Milk Production OnlyWorld Milk Price 2014
North East South
Non-Milk Returns and Subsidies
North East South
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Cost Competivenessaverage sized farms per country in 2014
Labour productivity
North East South
9.6
Wage rate varies in different regions of Africa ranging from 0.2 to 2.3 US-$/hour
All dairy farms are making a full wage income from dairying except Zimbabwe.
Except South Africa, labour productivity in general is very low.
The cycle of low milk yields, lower investment and low productivity leads to low returns to labour.
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Herd size and poverty
North East South
Farm Income Sustainability
Family farm Income
North East South
133 1297 253 899 45 520 126 390
Assumption: Minimum family income per day of 8 US-$ per day to overcome poverty for a family of 4 if dairying is the only occupation.
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Summary
• Milk prices to the lowest levels since 2009 and are in the third crisis since 2007
• Dairy farming system are very diverse – so far 121 million dairy farms with an average farm size of 2.9 cows per farm.
• Global view onCost of milk production 2014 – consolidates towards 40-45 US-$/100 kg ECMCosts development trends shows significant increases in major milk producing countries in Europe and USA till 2008 and consolidation to around 45 US-$. Developing economies are also closing in to the 40 US-$ level incl. NZ.
• Dairy development in Africa Very low average milk yield of 569 kg ECM/Cow/year but high deviation in farm types.• Costs of milk production in Africa has wide variations from 22.5 to 59.5 US$/100 kg ECM.• The milk price also varies widely in different countries from 28 to 61 US$/100 kg ECM.• Dairying can play a significant role in overcoming poverty.
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Thank you for your attention
Dairy Research Center
in Kiel
Network of researchers
Conference 2015 hosted by GEA
Network of companies
Conference 2015 hosted by Cargill and Elanco
This presentation is the result of a large number of people working together since 2000.