Who benefits? This is the question you need to ask yourself as quotas draw to an end and dairy farmers and potential new entrants gear up to life after them. Most of you are glad to see the back of the quota regime, but will you benefit from the opportunities it brings?

I’ve recently returned from a month’s visit to New Zealand, having worked there as a consulting officer for a year in the late 1990s. The change in how milk is produced is staggering.

The creep towards grass-poor systems of production is noticeable everywhere. A million cows have been added to their national herd in the last 10 years, yet we learned at the Irish Grassland Association conference last month that kiwi dairy farmers are no better off.

What can we learn from our own data from grass-rich and grass-poor systems of milk production about how cows perform and how the finances stack up?

To find out, I reviewed Teagasc’s profit monitor database for over 1,500 dairy farms from the 2008 to 2011 period. These years were chosen to reflect the variation in milk prices and weather conditions, which we can expect on average over the next five years.

The data collected is also representative of all regions of Ireland and the analysis represents the average performance of each system across all regions during the period.

Using information on purchased concentrates and forage, and comparing that with total demand, I was able to calculate the percentage of homegrown grass used in the diet.

I then categorised farms into four systems. Systems one and two used >90% grass and 80% to 90% grass in the cows’ diet, respectively (termed grass-rich).

Systems three and four used 70% to 80% and <70% grass in the cows’ diet respectively (termed grass-poor).

Production

Table 1 summarises the feed, stocking rate and milk production averages of the four systems analysed.

The data shows the relatively large number of Irish dairy farmers who completed profit monitors over the period operating grass-rich systems of milk production.

  • As the percentage of bought-in feed increased, the consumption of grass dry matter declined because the increase in overall and milking platform stocking rate was not great enough to make up the difference.
  • Cows in grass-poor systems had a shorter full-time and part-time grazing season than cows on the more grass-rich systems.
  • The milk yield per cow and per hectare rose with increasing proportions of the diet coming from bought-in feed.
  • The data in Figure 1 shows the response to additional feed consumed per cow.

    The response observed was the equivalent of 0.67 litres of milk per additional kilogramme of feed eaten – assuming a milk and meal price of 30c/litre and 30c/kg respectively, this suggests a return of 20c worth of milk for 30c worth of meal.

    The response to supplements is low, indicating that cows were already on a high plane of nutrition.

    When the extra feed was introduced, it was eaten instead of grass – a high substitution rate happened at farm level, as indicated in Figure 2. The data in Figure 2 shows that for each additional tonne of feed purchased, grass utilisation declined by 600kg of grass dry matter – a substitution rate of 60%. For every 1kg of additional feed consumed, total intake only increased by 0.4kg DM.

    If the cows were being underfed, the substitution rate would have been lower.

    Financial performance

    What are the implications for financial performance? Table 2 shows that, on average, grass-poor systems of milk production generate more output but are less profitable.

    The data shows that higher output did not increase net profit on either a per-litre or per-hectare basis.

    Reducing the grass content of the diet increased total costs per litre – variable costs, particularly the feed costs, jumped, while fixed costs remained static.

    On either a per-cow (not shown) or a per-hectare basis, variable and fixed costs increased. This increase was greater than the increase in gross output and so the net margin (the margin remaining to pay the farmer, bank principle and taxation) was €200/ha lower in the grass-poor system compared with grass-rich systems.

    It seemed surprising that a milk yield response of 0.67 litres/kg of additional purchased feed was not profitable when the four years of the study are taken into consideration.

    The reason for this is explained in Figure 3, where we look at what tends to happen as farmers increase feed input.

    Spending on the grass-poor farms doesn’t stop at just meal and forage purchase. For every €100 spent on feed (meals and forage), an average of an additional €60 was spent on other costs on the grass-poor farms.

    The extra costs included:

  • Machinery operating and running costs (including contractor costs).
  • Farm maintenance and running costs (including car, ESB and phone).
  • Worryingly, both short- and long-term interest costs are higher, indicating a greater level of indebtedness is being incurred on the grass-poor farms, through day-to-day expenditure and long-term borrowings.
  • The rest of the difference was made up of small increases in a range of different costs.

    This study does not suggest that farmers in less grass-rich systems of milk production can’t make a reasonable margin. There was as much variation in net margin per hectare within systems as there was between systems.

    However, the proportion of farmers generating a net margin of greater than €2,000/ha was twice as great in the grass-rich systems.

    As a result of this analysis, all dairy farmers, irrespective of their system of milk production, should ask themselves the question: how can I increase the proportion of grazed grass in the diet of my dairy herd without incurring extra costs in the process?

    Steps that farmers can take to achieve this include:

  • Ensuring that the soil lime status and P and K index are optimised – if you don’t know, take soil tests now and act on the results.
  • Walk the farm regularly and measure the amount of grass that you grow to identify poorer paddocks for improvement.
  • Ensure the milking platform is fully reseeded and accessible by the cows – there is no place for growing forage crops such as maize silage or whole crop on the platform at stocking rates of over two cows/ha and no need at lower stocking rates.
  • Many outfarms are performing poorly. Improving their potential to grow grass for replacement heifers and to provide grass silage for the winter requirements of the dairy herd will be a lot more profitable than purchasing more feed or forage to feed the cows.
  • Legions of people are looking forward to quota removal as an opportunity to improve their lot. Many of them are not farmers, but make their living off farmers.

    Before you are tempted by promises of maximising the cow’s potential by using this, that or the other, stop and ask yourself the question: who benefits?

    The contributions of Donagh Berry and Brendan Horan, Teagasc Moorepark, and John Roche, DairyNZ, in the analysis of the data are acknowledged.