An Economic Evaluation of the FutureDairy Complementary Forage Rotation System – Using Whole Farm 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 Whole Farm Budgeting, Economic Research Report No. 45, Industry & Investment NSW, Armidale, August.

Executive Summary

Australian dairy farmers manage their businesses in the context of a deregulated market that is exposed to competition and the protectionist vagaries functioning within the international dairy trade, which has historically resulted in declining terms of trade. Further, increased competition for land in many of Australia’s traditional dairying regions from both alternate agricultural and non-agricultural activities has increased the effective cost of operating dairy businesses. Dairy farmers respond by increasing farm productivity. Intensity of Australian dairy farming has seen 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 preliminary economic analysis of the potential impact of CFR in the East Gippsland area of Victoria has been completed, with major inputs by Dan Armstrong (DPI Vic). The study looked at two case studies, the ”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?; and the ”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 the proportion of the farm area 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 this analysis 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, and this analysis is reported here.

In this study, the economic evaluation of the CFR technology is extended from that presented in the companion report (Alford, Garcia, Farina and Fulkerson, 2009a), which evaluated the technology using variable cost budgets and cost budgets and risk based upon the data from paddock-scale trials at Elizabeth Macarthur Agricultural Institute (EMAI). Biophysical modelling combined with preliminary results from farm trials conducted at the University of Sydney’s Corstorphine Dairy were used to apply 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.

The economic whole farm evaluation was structured to address the following question:

Would an integrated combination of CFR and high production pasture (referred to as complementary forage system or CFS) be a potentially profitable alternative to other options such as growing and utilising more pasture or purchasing more feed?

This question was addressed by a combination of physical and economic whole-farm modelling. Results clearly show that a CFS system has the potential to be profitable under the conditions and assumptions detailed in the modelling exercise. In this study, a base scenario describes a relatively well managed dairy farm in NSW. The farm, with 140 ha of milking area, is stocked at 2.4 total cows/ha, utilises about 12 t DM/ha/year under irrigation and produces more than 16,000 L/ha/year from 6,900 L/cow, and achieves 0.9 % return on assets. A pasture and supplement (concentrates) production system implemented on the base farm achieved 6 per cent return on assets (3.7 cows/ha, 9,000L/cow and 2.3 t DM/cow/lactation concentrates), while the CFS system achieved a return on total assets of 8 to 12 per cent, based upon actual or targeted (best case) forage yield results, respectively. The CFS-based farm business became relatively more profitable when scenarios with increased cost of fertiliser, water and especially grain were examined. However, these results looked at a steady state situation after the implementation of the systems on farm, and so do not look at implementation costs associated with adopting the technology on farm, which will be particularly dependent upon the current financial circumstances of individual farm businesses.