The impact of system changes to a dairy farm in south-west Victoria: risk and increasing profitability

Abstract

A case study modelling approach was used to examine changes to a dairy farm in south-west Victoria to maintain or increase profit in the future 5–10 years in the face of some ‘cost-price squeeze’, emphasising impacts on both returns and risk. Five changes to the status quo system were analysed. Each involved increasing pasture consumption on the milking area and non-milking leased area (where appropriate). The five changes were: (1) reducing leased non-milking area by 100 ha; (2) converting 60 ha of non-milking leased area to milking area, reducing leased non-milking area by 100 ha and reducing stocking rate on the milking area; (3) converting 187 ha of leased non-milking area to milking area, increasing herd size to 800 cows and reducing stocking rate on the milking area; (4) discarding all leased area, reducing herd size to 370 cows and reducing stocking rate; and (5) converting 127 ha of non-milking leased area to milking area, discarding all other lease arrangements and reducing stocking rate. Mean ± standard deviation of nominal owner’s equity at the end of Year 10 was $2.59M ± $1.33M, $5.42M ± $1.26M, $5.76M ± $1.21M, $7.47M ± $1.64M, $6.01M ± $0.78M and $6.10M ± $1.19M for the status quo and development options 1–5, respectively. For most but not all of the development options, the risk associated with the profit, cash and equity as measured by a range of indicators improved markedly over the performance of the farm system under the status quo. Both substantial increases and decreases in herd size were attractive. Irrespective of the direction of change in herd size, the most profitable options involved reducing stocking rate per ha and reducing purchased supplementary feed compared with the status quo. Significantly, changing to increase productivity greatly reduced the risk of having less equity at the end of Year 10 than the starting equity. Optimising the amount of home-grown grazed feed, and using purchased supplements efficiently are important, particularly if the milk being sold is subject to export market prices and variation. The most appropriate changes to dairy farm businesses in response to changes in the operating environment will vary from farm to farm – but maintaining the status quo in the face of change is not an option that meets farm family goals.