Small dairy farms can still be profitable

[This post was first published in the Fairfax NZ Sunday Star Times on 7 December 2014]

Last week I wrote about the changing scale of dairying. Farms are getting bigger and they will continue to do so, driven by the combined power of scale and financial leverage.

Unfortunately the title I supplied for that article (‘The changing scale of dairy’) was changed in the Sunday Star Times to ‘Dairy is all about scale’. This title implied that there was no future for small dairy farms. However, those of us working with farmers know that small farms can indeed be profitable, and there are many factors other than scale that influence that profitability.

The false impression in last week’s Sunday Star Times article was further compounded by a headline sentence, inserted by editorial staff, that there were 1900 farms with 4.8 million cows. The correct number for 2013, as stated in the article itself, is 11,900 farms.

New Zealand Dairy Statistics, published jointly by DairyNZ and LIC, shows that in 2013 there were 5400 farms with less than 300 cows. These farms comprised 46 percent of total farms and supplied 21 percent of New Zealand’s milksolids. Farms with less than 200 cows comprised 20 percent of herds and produced 7 percent of the milksolids.

Unfortunately, our current knowledge about the profitability of these small farms is limited. Whereas the DairyNZ Economic Survey reports profitability by region and by intensity of farm system, there are no comprehensive data on the profitability of small farms. This is surprising, particularly given that this sort of information is readily available in countries like the USA. It is something that DairyNZ needs to remedy.

We know from herd recording data collected by LIC that, on average, small farms do produce less per cow than big farms. In 2013, farms with less than 200 cows averaged 311 kg milksolids per cow, those from 200 to 299 cows averaged 335 kg milksolids, and those above 300 cows averaged 352 kg milksolids. One reason why this is occurring could be that many of the smaller farms are in more difficult dairying regions. Also, we know that many of these smaller farms choose to run low input low cost systems which leads to lower cow production but not necessarily lower profits.

Where small farms are at a clear disadvantage is in relation to infrastructure. For example, the most efficient milking sheds are rotary design, with cows stepping on to a rotating platform one by one, and with about 50 or more milking bails. There are considerable capital cost savings per cow with these sheds on larger compared to small farms. Similar savings occur with effluent systems, irrigation and other farm machinery.

Compliance issues are becoming increasingly time-consuming on dairy farms. These issues require similar amounts of work regardless of the size of the farm. Similarly, it takes small farmers just as much time to investigate new technologies, but the overall returns are less than for the bigger farmers.

Small farmers can be more resilient to periods of economic downturn, but only if they are efficient. Often the smaller farmers have less debt per unit of production because they have been established longer than the big farmers.

The 2013 DairyNZ Economic Survey shows that when we look at all farms regardless of size there are huge variations in efficiency. The top quartile of farmers had an operating profit per hectare of $3171 compared to $497 for the bottom quartile. There is some evidence that the high performers on average have more cows than the lower performers, but most of us who work with farmers think the differences are more about passion and attention to detail.

We see both big and small farmers who belong in that top quartile. We also know from direct observation that small farmers have many different strategies to deal with the challenges of small scale. Some reduce the work requirement by shifting to once-a-day milking for part or all of the season. Others simplify the farming system to minimise the need for employed labour.

Something else we know about small farms is that many of the owners are satisfied with their current situation, although none will be pleased by this year’s predicted milk price.

My colleague Dr Victoria Westbrooke last year interviewed 13 Waikato small scale dairy farmers as to their plans and aspirations and published her results in the March issue of Primary Industry Management. Most of these farmers emphasised the importance of a work life balance, and the importance of community activities. Many seek to stay on the farm as long as personal health makes that feasible. Many also see the farm as something to fund their retirement rather than to pass on to their children. In any case, many of these children do not seek the life of a small scale dairy farmer.


About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
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