Key determinants of profitability for pasture-based dairy farms
By David Beca
The key determinants of profitability for pasture-based dairy farms, and the impact of changes in pasture harvest, milk production per cow and production system (as determined by pasture as per cent of cow’s diet) on business performance are explored. A database of Australian dairy farm performance was analysed to determine what financial and physical ratios correlate with profitability (reviewing 150 separate ratios). How the more significant ratios change in relation to changes in pasture harvest, milk production per cow and production system was also reviewed.
One of the intended outcomes from this paper was 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 has been identified. A further intended outcome was to answer a common question as to whether the selection of a production system was relevant in determining the level of profitability of a dairy farm or if the sole determination of the level of profitability was the operator’s proficiency and accuracy in executing daily management decisions.
Pasture harvest was the most important single factor impacting on profitability as expressed by return on capital (R2 = 0.41), with the second most important factor having an R2 = 0.25. However, the selection of a production system will significantly impact on the resulting level of business performance due to the 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 profitability 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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