Profitable and resilient pasture-based dairy farm businesses in New Zealand

There have been several analyses of the economics of pastoral dairy farm systems in New Zealand using real farm data, as well as several relevant international studies. However, these analyses have often used a dataset with a limited number of years that do not reflect long-term exposure to volatility, or do not allow for regional differences, and often focus on imported feed without due attention to other important characteristics of profitable farms. Several prior analyses have failed to consider the importance of a business that is resilient to major risks. We re-examined the relevance of their conclusions for New Zealand dairy systems against 12 years of DairyBase data, focussing on two major regions, deriving key insights on relevant strategic choices for profitable and resilient businesses at a farm and, by extension, industry level. Within years and regions, the top quartile of observations was identified, on the basis of ranking by operating return on assets, as a proxy for farms achieving their potential, and compared with the remaining observations. Within geographical region, the greater profitability of the top quartile was associated with greater pasture and crop eaten, greater stocking rate and production per cow, and lesser operating expenses per hectare and per kilogram milksolids (MS), defined as fat plus protein. However, greater profitability was not associated with greater use of imported feed. Linear regression was used to determine that increases in total operating expenses were associated with increases in the costs of imported feed (including winter grazing and silage made on farm). On average, for every NZ$1 spent on imported feed, total costs increased by NZ$1.66 and NZ$1.53 for the Waikato and Canterbury–Marlborough regions, respectively. This is consistent with the international literature for temperate grazing systems and is likely the reason why profitability was not greater even if above-average responses to supplement were achieved on farm. Indeed, greater use of imported feed was positively associated with operating expenses per kilogram of MS, implying that the marginal cost of additional MS was greater than the cost of the base milk, and often higher than the value of the milk produced. If gross farm revenue per kilogram MS (which is largely made up of the milk price, with a lesser contribution from livestock sales) was greater than NZ$7.50 (which it was the case in only 3 of the past 12 years), farms could generate higher profit from more imported feed use; however, the reverse was true at lower milk prices. When milk prices are low, (i.e. gross farm revenue is less than NZ$6.50/kg MS, which occurred in half of the past 12 years), farmers are often under cashflow pressure. Therefore, farm systems that are less reliant on imported feed provide a better chance for farmers to meet financial commitments, although they fail to maximise profitability when the milk price is high (e.g. >NZ$7.50/kg MS). In conclusion, maximising pasture harvested, and minimising reliance on supplementary feed, and effective cost control (minimising expenditure) are the key factors that lead to profitable businesses that are also resilient to the low milk prices that occur in volatile markets.