The economics of dairy farm intensification explained

This topic was discussed at length at the November Dairy Research Foundation Symposium at Forster, NSW, last year where a panel of industry experts discussed the benefits and challenges of housed cows.

Cowra, NSW, dairy farmer and NSW Farmers Dairy Committee chair Colin Thompson milks 320 cows.

In 2000 his family moved to Cowra and, at the same time, started on the journey to an intensive dairying system.

Making the shift was something Mr Thompson always had in the back of his mind.

"One of the key motivators was reducing risk - to have a system that wasn't impacted by a change in climatic conditions," he said.

The other driving factors included getting more from less: More milk from the cows, more production from less area, better use of resources, having a facility that was good to work in and would attract employees with modern technology, and a system that was sustainable and reliable."

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Mr Thompson acknowledged they had faced challenges operating a TMR farm over the years.

"Initially, it was regulators, local council and planning issues," he said.

"It was a big learning curve; it took time to adjust to farming in a different region, under a different system and working through drought. Hence, I wanted this system to become drought-proof and self-sustaining.

"We made lots of mistakes, and we learnt the hard way.

"One thing that hasn't changed is our view of having a sustainable, profitable and high-production system regardless of the seasonal conditions - that goal hasn't changed."

Manning Valley Dairy manager Simon Scowen is nearly three years into the planning phase of an intensive farming system.

The key motivators behind the decision were ensuring their cows were more comfortable during extraordinarily wet and extremely hot conditions combined with a simplified management plan.

"Under a pasture-based system, cows are impacted by things such as the weather and how much grass they eat," he said.

"Management is more difficult under a pasture-based system."

Mr Scowen, who has managed a TMR system previously, milks 900 cows on the family-run corporate farm, which encompasses 320 hectares.

When the family, together with the farm owners, conducted a SWOT analysis of their business, he said a "couple of things stood out", which exposed their business to risk.

Their reliance on purchased feed was greater than 60 per cent and, in some years, more than 70pc.

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More than a third of the farm is rich, alluvial flats. With up to six kilometres of frontage to the Manning River and access to a reliable water right, the farm can grow an abundance of feed, focusing on corn rotated with a ryegrass crop.

"Under our previous bike-shift irrigation system, we were lucky to graze 12 tonnes a hectare, so by cropping that country and installing centre pivot irrigation, we can triple that production to 36 tonnes to the hectare," Mr Scowen said.

The business has a development application lodged with the local council for a 30 x 300 metre, or 9000 square metre, compost barn.

They intend to reduce the milking herd to 600 head, which offers an area of 15 square metres for each cow.

This will also allow for more room for replacement heifers to be grown out on pasture.

The property gets hit with summer storms and is exposed to bad weather from the south-west, which will cause an issue with the compost getting wet.

It is why they have moved away from a traditional design with a centre feed pad, with cows on each side, to the cows being in one large group and feeding on one side.

Down the track, this will also allow for a robotic dairy to be built in the middle of the shed once the current rotary dairy nears the end of its life.

The business is one of six Manning Valley Farms that supply milk to Woolworths, under the Farmers Own label.

"We have a feed pad at the moment, which becomes a disaster when it rains, and when the cows go out in the paddock; they all want to be under a tree, and we don't have enough shade," Mr Scowen said.

"All of a sudden, we have a group of cows stomping in the mud, it is humid, and mastitis goes through the roof.

"We don't join here from mid-December to mid-March; it is a waste of time. So our milk production curve is not even.

"Woolworths want a flat curve of high-quality milk, which we find difficult to provide at the moment - so that's why we are looking at housing our cows.

"No doubt we have a lot to learn, but we feel confident."

During the symposium, Scibus managing director and Dairy UP P2 lead Professor Ian Lean offered the key findings from a trial performed in an intensive dairy farming system at Timboon, Victoria.

The shed is located in a reasonably cold and wet area and only lies a few kilometres from the Great Ocean Road.

"We had a spectacular jump in production with these cows within the shed, they had been feeding for about 10,000 litres or more, and we were only getting about 8500 litres on average," Mr Lean said.

"Once these cows went into the shed, they immediately lifted production."

The cows were losing milk in exercise.

"It has been proven that cows lose milk by walking; they particularly lose milk when walking uphill and when they have to forage and deal with wet, pugged paddocks," Mr Lean said.

"The responses were immediate; the current production in this trial is about 37 litres or 2.85kg milk solids."

NSW DPI dairy development officer, Sheena Carter, spoke about the Economics of Intensification project, which aims to understand the performance of existing TMR farms in NSW.

The project is one of 10 in the collaborative DairyUP program that assists farmers to increase productivity and profitability, de-risk the dairy industry and develop new markets.

She provided a snapshot of the economic data from seven anonymous TMR farms from the NSW/Queensland border to the Victorian border, located predominantly in the inland regions, providing examples with a variation in climate, resources and feedbases they use.

Mrs Carter and her team analysed five years of data. However, not all farms entirely operated a TMR system for those five years.

By 2021, they were all considered TMR farms with zero grazing.

The program examines historical performance and social science studies. These two parts of the work aim to help farmers make informed decisions when investing in intensive farming systems.

"These businesses require a lot of capital to set up, and they require a very different management skill set compared to the more common pasture-based systems we see in New South Wales," she said.

"With the Dairy Farm Monitor methodology used in analysing the businesses, we look at the cash position of the business, the profit position and the wealth position. However for the project we are only reporting on their profitability."

Mrs Carter said the study revealed that these farms tend to carry larger herd numbers, have a larger usable area and have higher per cow production - both on a litres basis and a kilograms of milk solids basis.

The dataset revealed it was a bit over 8600 litres per cow.

"We might expect this to be higher in these systems where we expect operational efficiencies, feed conversion efficiencies, higher genetic merit cows, but a lot of it is to do with that transition noise we've got in the data. I don't think some of these farms have realised their potential yet," Mrs Carter said.

Profit was reported on return on total assets managed, both the owned and the leased assets.

Operating profit is divided by all the value of the managed assets to determine the return on total assets.

"That five-year period included three intense years of drought, which impacted the farms' performance, and in 2021, we started to see a turnaround in the season," Mrs Carter said.

"The TMR farms certainly are profitable on average. However, there is a wide range in profitability.

"It is explained by the exposure of some of these businesses to the purchased feed market. Due to various circumstances, some relied on an extraordinary amount of purchased feed in the herd's diet.

"By 2020, we had extremely high feed prices at the height of the drought.

"That's one of the risks in these systems - if you don't secure your feedbase and understand where you're getting it from and the quality, you're at risk of lower profitability."

The project looked at some of the gross farm income variations within each business, including milk income, livestock trade and profit, and feed and water sales, and compared them with those in the Dairy Farm Monitor Project.

"Milk income isn't higher in these businesses compared to pasture-based dairies, and we have farms in different pricing systems throughout the state," Mrs Carter said.

"When we compare them to the Dairy Farm Monitor Project farms, they have a larger proportion of livestock trading and feed and water sales, which tells us they have made a strategic decision within their business to diversify, and this is how they've consciously positioned their businesses.

"Generally, these businesses have larger land areas, so they've got the ability to do this."

When looking at total feed costs, homegrown feed costs were lower on a dollar per kilogram of milk solids basis, while purchased feed costs were higher.

This was not necessarily because the cost per tonne of dry matter was higher but rather because they bought in higher feed volumes.

"When the conditions are right in a good season, these businesses try and put away as much hay and silage as they can to draw on later when it's needed - that's a big difference between the TMR farms and the pasture-based cohort of farm monitor farms," Mrs Carter said.

"Overhead costs on a dollars/kg MS basis were lower on the TMR farms than the average farm.

"This is partially explained by the fact we are measuring this in dollars/kg MS, so they're producing a lot of milk and can dilute a lot of those overhead costs."

Not surprisingly, the big-ticket item was labour costs.

"Within any business, we know they're constantly increasing. It's not something that will stop increasing in the near future," Mrs Carter said.

"Paid labour makes up a large proportion of costs in a TMR farm, which is not surprising because, generally, they are bigger businesses."

Again, when comparing TMR farms with those in the Dairy Farm Monitor program, repairs and maintenance costs weren't vastly different.

"NSW farms, in general, tend to have a lot of plant and equipment to do a lot of their own paddock work and fodder conservation work," Mrs Carter said.

"In many areas, it is quite challenging to get contractors, so farmers prefer to have their own gear to do these operations in a timely manner.

"Also, in NSW, we have a lot of farms that have feed pads, which come with the associated plant and equipment to feed out and mix the ration.

"That's probably part of the reason why there isn't so much of a difference between the two systems."

The social science component of the program is about trying to understand the motivations behind people adopting these systems and some of the decision-making processes that occur in that journey.

The University of Melbourne was engaged to conduct the social science component.

The research was gathered through one-on-one interviews with nine TMR farms in NSW and consultants supporting people moving towards TMR systems.

"We also ran an online survey of NSW farmers, which indicated that many respondents had made a change to their feeding system in the last five years, and more than half were looking to make a further change in the coming five years," Mrs Carter said.

In summary, Mrs Carter said TMR systems could be profitable but with more variation in profit in tough years.

They tend to have business diversification strategies, whether it's livestock, feed or water sales.

Importantly, feedbase management is a considerable risk area that requires focus.

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