Labour Cost and Labour Efficiency within the Australian Dairy Industry
Published in Australasian Agribusiness Perspectives
By David Beca
Maintaining a competitive labour cost is important to the overall competitiveness of the Australian dairy industry. Total labour expense is the second largest cost centre after total feed cost on dairy farms, with all other cost centres being substantially smaller. The question explored in this paper is how labour cost-competitive and efficient Australian dairy farms are, compared to dairy farms in other countries, and how do farms in each state and region within Australia compare to each other. When the total labour cost per litre (energy corrected) on Australian dairy farms is compared to five other countries over the last six years, Australian farms have the highest cost. The Australian labour cost per litre was on average 33 per cent higher than in New Zealand and 49 per cent higher than in the United States.
Total labour cost comprises two factors: the cost of labour by unit of time and the amount of time taken to complete the required tasks on a dairy farm, which can be described as the level of labour efficiency. Labour cost per unit of time in Australia has often been reported as very high compared to other countries and this is confirmed in this paper. This need not be an impediment if labour efficiency, or productivity, is commensurately higher than in other countries. Labour efficiency requires a more nuanced reporting as it is impacted by several factors including the capability of organisational management, the level of infrastructure development and technology employed within the business, and the farm production system being implemented including whether the focus is more on pasture production or milk production.
An analysis of the level of labour efficiency in Australia, including the impact of farm size and production system, confirms that some states including Tasmania and Victoria have a comparatively high level of efficiency while other states including New South Wales, Queensland, South Australia and Western Australia have a comparatively low level of efficiency. There will also be a large variation in labour efficiency within states and regions. However, there is a significant opportunity to improve labour efficiency within the Australian dairy industry, which would be assisted through a focus on relevant labour ratios and the setting of targets for improving these ratios. The two most important labour efficiency ratios confirmed in this paper are labour cost per cow and number of cows farmed per full-time person equivalent.
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