An Economic Evaluation of the FutureDairy Complementary Forage Rotation System – Using Cost Budgeting

Alford, A.R., Garcia, S.C., Farina, S. and Fulkerson, W.J. (2009), An Economic Evaluation of the FutureDairy Complementary Forage Rotation System - Using Cost Budgeting, Economic Research Report No. 44, Industry and Investment NSW, Armidale, August.

Executive Summary

Australian dairy farmers manage their businesses in the context of a deregulated market that is exposed to a highly competitive and protectionist international dairy trade. This has historically resulted in declining terms of trade.

Increased competition for land in many of Australia’s traditional dairying regions from both alternate agricultural and non-agricultural activities has further increased the effective cost of operating dairy businesses. Dairy farmers respond by increasing farm productivity, with increased stocking rates and production per cow.

This has been achieved by increasing the quantity of purchased feed, particularly concentrates, and increased production of home-grown feed from pastures and forage crops. At the same time, the increasing cost of dairy land, projections of increased grain costs, and limited availability and increasing cost of irrigation, highlight the potential benefits of technologies aimed at increasing the production of home-grown feed.

The complementary forage rotation (CFR) component of the Future Dairy project aims to achieve high levels of home-grown forage to complement high performance dairy pastures.

A previous economic analysis of the potential impact of CFR in the East Gippsland area of Victoria with major inputs by Dan Armstrong (Victorian department of Primary Industries) examined two case studies. An ‘average’ pasture-based dairy farm, in which the farmer may ask the question, what role, if any, could a CFR play in his/her farming system?

The second case study involved a ‘fodder reliant’ dairy farm, in which the farmer may ask, how does growing more forage through a CFR compare to buying more land/water, or buying supplements or just doing what I currently do, better?

The analysis concluded that a CFR had the potential to increase profit in both cases, but, as expected with strong dependence on forage yields and what proportion of the farm area is devoted to CFR. Also as expected, implementation of CFR was more risky on the relatively small farm (55 ha), than on the fodder reliant farm (>270 ha).

The implicit message highlighted in these analyses is that CFR can be a realistic option only after the potential of pasture utilisation has been fully exploited. Therefore, a step-wise analysis of the cost of feed production, risk, impact of infrastructure costs, and whole farm implementation is warranted.

The analysis undertaken is reported in two parts. In this study, the economic evaluation of the CFR technology is structured to progressively evaluate the technology by using variable cost budgets and cost budgets incorporating additional capital costs and risk based upon the data from paddock-scale comparison at Elizabeth Macarthur Agricultural Institute (EMAI).

A companion study (Alford, Garcia, Farina and Fulkerson, 2009b) extends this cost analysis by applying steady state whole farm budgets to compare alternate or progressive scenarios that might be considered by farmers looking at the potential to increase farm productivity through their feeding system.