The effect of dairy farm intensification on farm operation, economics and risk: a marginal analysis

Recent intensification of New Zealand dairy farms appears to be premised on both increased production and milksolid (MS) price covering the increased capital and running costs resulting from intensification. The present paper examined the effect of intensification on production and profitability of a self-contained pasture-fed 330-cow dairy farm (DairyNZ System 1). A resource-allocation model analysed increases in the farm herd from 330 cows through to 375, 450, 525, 600 or 700 cows (DairyNZ System 5). Each discrete additional capital investment altered the income and farm working expenses. There were two options, namely constant average per-cow production or increased average per-cow production. Each herd-size scenario was run for prices ranging from NZ$4.20 to NZ$10/kg MS, so as to identify which level economically justified the intensification and to estimate risk, taken as rate of change in profit due to price change. It was found that for constant per-cow production, System 2 and System 3 scenarios were more profitable but slightly riskier than was System 1 at above NZ$4.20/kg MS. System 4 was less profitable than Systems 1–3 at less than NZ$7/kg MS. At less than NZ$10/kg MS, System 5 was the least profitable and the riskiest scenario. Where per-cow production increased, Systems 2–4 were more profitable and marginally riskier than was System 1. System 5 was more profitable than System 1 at over NZ$7/kg MS, but never as profitable as System 4. System 5 was the riskiest scenario. The model can provide a means of evaluating the effects of intensification under future milk-price scenarios.