Key determinants of profit for pasture-based dairy farms
Published in Australasian Agribusiness Perspectives
By David Beca
The key determinants of profit for pasture-based dairy farms and the impact on business performance of changes in pasture harvest, milk production per cow and production system, as determined by pasture as per cent of cow’s diet, are explored. One of the intended outcomes from this paper is to define a core group of ratios that can be used to reliably analyse farm business performance and identify which areas of a dairy farming business are performing well or poorly. An effective ranking of this core group of ratios is identified. A further intended outcome is to answer a common question as to whether the selection of a production system is relevant in determining the level of profit of a dairy farm or if the dominant determining factor in the level of profit is the operator’s proficiency and accuracy in executing daily management decisions. A database of Australian dairy farm performance was analysed to determine what financial and physical ratios correlate with profit. How the more significant ratios change in relation to changes in pasture harvest, milk production per cow and production system is reviewed.
Pasture harvest was identified as the most important single factor impacting on profit as expressed by return on capital (R2 = 0.41), with the second most important factor, stocking rate, having an R2 = 0.25. The selection of a production system will also significantly impact on the resulting level of business performance due to its substantial impact on a wide range of key profit-related ratios. As a result, this paper proposes that both the level of pasture harvest and the choice of production system can be combined with operator proficiency to form the three primary factors that influence the level of profit on pasture-based dairy farms.
This addendum to the paper includes a comparison between the Australian set of data and a South African set of data. The South Africa analysis comprises 244 sets of dairy farm data relatively equally spread across the four years of 2014/15, 2015/16, 2016/17 and 2017/18. All graphs from the main paper are replicated in this addendum using the same figure numbers and titles, with the Australian and South African graph of each ratio plotted side-by-side.
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