Milk production worldwide is carried out on around 122m dairy farms (IFCN estimate) which stock 363m milking cows and buffaloes. This means that the world’s average farmer keeps just three milk animals with an average annual yield of 2,100kg/animal/year. Of course, building averages is an oversimplification. There is a wide range of dairy farms in the world keeping less than three cows per farm, while in some countries, dairy farms are much bigger and keep over 1,000 cows per farm.
Production systems also differ significantly in terms of farm size, housing, milking and feeding systems. This article puts the Irish dairy farming system into context by focusing on how typical Irish dairy farms compare internationally in terms of costs of production and returns.
Costs by region
The annual IFCN work of comparing typical farms around the world has been an ongoing process since 2000. The costs and returns outlined in this article relate to what is called ‘typical farms’ in each region of the world.
A typical farm represents the most common production system in a country or a region. Usually, two farm types are used per dairy region; the first represents an average farm and the second a larger farm type. The typical farms are put together and validated by a combination of accounting statistics and panels of dairy experts in each participating country.
ECM correction: as dairy farms throughout the world operate with milk of very different fat/protein contents, the volume of milk produced is calculated using the energy correct milk (ECM) approach to standardise milk volumes to 4% fat and 3.3% protein. Cost indicator: costs of production include all costs from the profit and loss account of the farm. From this level, the non-milk returns from sales of cull cows, heifers, calves, manure, etc and returns from coupled direct payments have been deducted. The opportunity costs for own labour, land and capital are included also. For creation of the world map, the average size farm from each country was used. Figure 1 shows a simplified global overview on costs of milk production. The map is based on the results of the typical average sized farm analysed per country in 2012. The average cost of milk production in 2012 over all countries analysed was US$46/100kg milk. Cost of production ranges from US$4/100kg milk in extensive farming systems in Cameroon (where beef is the major output and milk is a side product) to US$128 for an average sized farm in Japan. The results can be summarised as follows:
Low cost regions: based on the average sized farms, three low cost regions have been identified: Argentina, Peru and Uruguay; Central and eastern Africa; central and eastern Europe. Some selected countries in Asia (except Japan and large farms from China) also have low costs.Western Europe: the leading farms in western Europe had costs ranging from US$40 to US$55. On average, costs in western Europe decreased by US$1.1 in 2012 compared with 2011, mainly due to the weakening of the euro to the US dollar. The costs of production for the average size farm in Ireland in 2012 was around $47/100 kg of milk. (34c/l at current exchange rates).The US: small farms in Wisconsin and New York had a cost of $50, while large farms in California had the lowest of about $33. In general, the average costs of all typical farms analysed in the USA did not change and stayed at a level of $41.4 in 2012 compared with 2011 ($41.02).Oceania: the cost level in Oceania was about US$35.The CEEC: the average of all household farms from the CEEC witnessed a slight decrease in costs, also driven by devaluation of the local currencies to the US dollar.In 2012, milk production costs (in national currency terms) continued to increase on most dairy farms in the world following a rise in price of major input items (feed, labour and land) in many countries.
But, contrary to the year before, these higher input costs were not counteracted by a higher milk price – quite the reverse. The milk price stayed stable or even decreased in many countries, leading to worsening farm economics.
As the IFCN has been collecting and observing trends in costs and returns of milk production for over a decade, a time series analysis of the data is possible.
Observing the data for the period 2005 to 2012 shows an extreme picture of volatility in milk and feed prices in particular. Costs of milk production have increased in all countries examined during the period. This is especially the case for countries like Poland, China and New Zealand, where the value of the currency has significantly strengthened to the US dollar and farm input prices, like land, feed, and labour, have increased significantly.
It is interesting from an Irish perspective to examine the position in NZ, as they, like us, have an extreme export orientation. The results in Figure 2 reflect the situation of a typical average sized dairy farm from Ireland and New Zealand. In 2012, this NZ farm type had 348 cows and represented over 50% of the milk produced in New Zealand. We compare this NZ farm against the average size Irish dairy farm with 62 dairy cows in 2012.
In US dollar terms, milk production costs increased by similar percentage terms in both Ireland and NZ over the past seven years. However, the source of the increase in both regions can be attributed to different reasons.
The increase in NZ costs can be explained by rising prices for land and labour in particular. The second driver in NZ was the appreciation of the NZ dollar against the US dollar. For agriculture, appreciating currencies means increasing costs in the currency used for comparison. However, in Ireland the increasing costs can be attributed to a range of factors, most notably fertilizer, feed, debt servicing and replacement costs. When measuring competitiveness it is vital that costs are not measured in isolation and returns should also be examined. It is apparent (Figure 2) that milk price increases were also evident in the two regions, with NZ benefiting more so in terms of gained revenue. Hence, the margin over total costs in NZ remains higher than on the average sized Irish dairy farm.
While these results could be considered as a warning signal for the average sized Irish dairy, it is much more reassuring to note that in recent years the larger Irish dairy farm fared relatively well in terms of margin over total costs, not withstanding the fact that typical farms in New Zealand (and Argentina) had considerably lower total economic costs per unit of product than farms in Ireland.
These results indicate that as Irish dairy farming transforms to larger scale production, the milk sector’s competitive position will be strengthened.
Milk production worldwide is carried out on around 122m dairy farms (IFCN estimate) which stock 363m milking cows and buffaloes. This means that the world’s average farmer keeps just three milk animals with an average annual yield of 2,100kg/animal/year. Of course, building averages is an oversimplification. There is a wide range of dairy farms in the world keeping less than three cows per farm, while in some countries, dairy farms are much bigger and keep over 1,000 cows per farm.
Production systems also differ significantly in terms of farm size, housing, milking and feeding systems. This article puts the Irish dairy farming system into context by focusing on how typical Irish dairy farms compare internationally in terms of costs of production and returns.
Costs by region
The annual IFCN work of comparing typical farms around the world has been an ongoing process since 2000. The costs and returns outlined in this article relate to what is called ‘typical farms’ in each region of the world.
A typical farm represents the most common production system in a country or a region. Usually, two farm types are used per dairy region; the first represents an average farm and the second a larger farm type. The typical farms are put together and validated by a combination of accounting statistics and panels of dairy experts in each participating country.
ECM correction: as dairy farms throughout the world operate with milk of very different fat/protein contents, the volume of milk produced is calculated using the energy correct milk (ECM) approach to standardise milk volumes to 4% fat and 3.3% protein. Cost indicator: costs of production include all costs from the profit and loss account of the farm. From this level, the non-milk returns from sales of cull cows, heifers, calves, manure, etc and returns from coupled direct payments have been deducted. The opportunity costs for own labour, land and capital are included also. For creation of the world map, the average size farm from each country was used. Figure 1 shows a simplified global overview on costs of milk production. The map is based on the results of the typical average sized farm analysed per country in 2012. The average cost of milk production in 2012 over all countries analysed was US$46/100kg milk. Cost of production ranges from US$4/100kg milk in extensive farming systems in Cameroon (where beef is the major output and milk is a side product) to US$128 for an average sized farm in Japan. The results can be summarised as follows:
Low cost regions: based on the average sized farms, three low cost regions have been identified: Argentina, Peru and Uruguay; Central and eastern Africa; central and eastern Europe. Some selected countries in Asia (except Japan and large farms from China) also have low costs.Western Europe: the leading farms in western Europe had costs ranging from US$40 to US$55. On average, costs in western Europe decreased by US$1.1 in 2012 compared with 2011, mainly due to the weakening of the euro to the US dollar. The costs of production for the average size farm in Ireland in 2012 was around $47/100 kg of milk. (34c/l at current exchange rates).The US: small farms in Wisconsin and New York had a cost of $50, while large farms in California had the lowest of about $33. In general, the average costs of all typical farms analysed in the USA did not change and stayed at a level of $41.4 in 2012 compared with 2011 ($41.02).Oceania: the cost level in Oceania was about US$35.The CEEC: the average of all household farms from the CEEC witnessed a slight decrease in costs, also driven by devaluation of the local currencies to the US dollar.In 2012, milk production costs (in national currency terms) continued to increase on most dairy farms in the world following a rise in price of major input items (feed, labour and land) in many countries.
But, contrary to the year before, these higher input costs were not counteracted by a higher milk price – quite the reverse. The milk price stayed stable or even decreased in many countries, leading to worsening farm economics.
As the IFCN has been collecting and observing trends in costs and returns of milk production for over a decade, a time series analysis of the data is possible.
Observing the data for the period 2005 to 2012 shows an extreme picture of volatility in milk and feed prices in particular. Costs of milk production have increased in all countries examined during the period. This is especially the case for countries like Poland, China and New Zealand, where the value of the currency has significantly strengthened to the US dollar and farm input prices, like land, feed, and labour, have increased significantly.
It is interesting from an Irish perspective to examine the position in NZ, as they, like us, have an extreme export orientation. The results in Figure 2 reflect the situation of a typical average sized dairy farm from Ireland and New Zealand. In 2012, this NZ farm type had 348 cows and represented over 50% of the milk produced in New Zealand. We compare this NZ farm against the average size Irish dairy farm with 62 dairy cows in 2012.
In US dollar terms, milk production costs increased by similar percentage terms in both Ireland and NZ over the past seven years. However, the source of the increase in both regions can be attributed to different reasons.
The increase in NZ costs can be explained by rising prices for land and labour in particular. The second driver in NZ was the appreciation of the NZ dollar against the US dollar. For agriculture, appreciating currencies means increasing costs in the currency used for comparison. However, in Ireland the increasing costs can be attributed to a range of factors, most notably fertilizer, feed, debt servicing and replacement costs. When measuring competitiveness it is vital that costs are not measured in isolation and returns should also be examined. It is apparent (Figure 2) that milk price increases were also evident in the two regions, with NZ benefiting more so in terms of gained revenue. Hence, the margin over total costs in NZ remains higher than on the average sized Irish dairy farm.
While these results could be considered as a warning signal for the average sized Irish dairy, it is much more reassuring to note that in recent years the larger Irish dairy farm fared relatively well in terms of margin over total costs, not withstanding the fact that typical farms in New Zealand (and Argentina) had considerably lower total economic costs per unit of product than farms in Ireland.
These results indicate that as Irish dairy farming transforms to larger scale production, the milk sector’s competitive position will be strengthened.
This is a subscriber-only article
SHARING OPTIONS: