Understanding the Dairy Sector in Slovenia: A Modeling Approach for Policy Evaluation and Decision Support

Abstract

This study investigates the dairy sector in Slovenia, focusing on farm heterogeneity, efficiency in resource utilization, and policy implementations. Through a modeling approach, we explore the differences among dairy farms, considering factors such as herd size, farm management, natural conditions, and production potential. Based on 32 typical dairy farms, representing the entire dairy sector, composed of 6400 dairy farms, the analysis was performed using the farm model (SiTFarm). We emphasize the importance of accurate assessments, given the variability of policy impacts across farm types. While medium-to-large, specialized farms dominate milk production, smaller farms, particularly in less favored areas, hold social and environmental importance despite facing competitive challenges. Addressing environmental sustainability could involve promoting practices that improve milk yield and include grazing, as this tends to lower greenhouse gas emissions per kilogram of milk (−5%). Dairy farms contribute about one-third of the generated revenue in Slovene agriculture, of which a good half goes to farms located in less favored areas. They manage a good quarter of permanent grassland in Slovenia, and it is certainly the sector that can achieve the highest return on these areas. In 75% of the farms, the gross margin is higher than 1756 EUR/ha and using best practices they exceed 3400 EUR/ha. The model results indicate that the average hourly rate on dairy farms during the observed period falls within the range of EUR 7.3 to 17.4 of gross margin for most farms, with the top-performing ones exceeding 24 EUR/h. However, due to the significant reliance on budgetary payments (on average, 58% of the gross margin), the implementation of the common agricultural policy strategic plan generally leads to a deterioration in the economic indicators of dairy farms. This impact is particularly pronounced on medium-sized and larger farms, increasing the effect on income due to the substantial fixed costs involved. Our findings underscore the interplay between policy interventions, farm characteristics, and sectoral outcomes, offering valuable insights for policy-makers and stakeholders.