Northern Irrigation and Southern Riverina
"Perseverance is not a long race; it is many short races one after another." Walter Elliott
The Dairy Bulletin is produced by DEPI Dairy Services Branch
Inside this issue:
- Protecting the farm business from carbon tax - is the CFI the solution
- The influence of farm size on income, costs and profability
- Monthly reminders
- What's On
Feeding Pastures for Profit is Coming. We Want You!
With a run of tough years you need to be at the top of your game to make a decent profit these days. This is your chance to really kick some goals and get some of that debt paid off, put some money away for a rainy (or not) day or take that well earned holiday - or even do it all. Come and spend some time with us and we will work with you to hopefully improve your profit, like you've never imagined.
It has been proven time and again, those who make the effort to improve the way they manage their farm can reap the benefits. Case studies have shown us, by participating in a Feeding Pastures for Profit (FPFP) program to better understand what influences profit and risk on farm, dairy businesses have been able to significantly improve their profit. As an added bonus, the skills and tools learned save time on the farm and ensure decision making is considerably easier.
"What's the catch?" There isn't one, other than your investment in attending the program.
Why should I attend a FPFP program?
These days you need to be a good manager to make a profit. Milk price and feed costs will continue to fluctuate, but every year you can use the same skills and principles to make sure you are doing the absolutely best you can given the operating conditions. FPFP is a program that can provide you with these essential skills. Change can be challenging, but how much longer can you afford not to be making significant progress in your farm business?
It's easy to get bogged down with the day-to-day jobs and not take the time to find better ways to do things. It is easy to say you can't afford the time off the farm, or your too busy, but what is it that's really holding you back?
Can DEPI and this program really help me?
Yes, you can trust us to help you move your business forward. DEPI staff who deliver FPFP are specially trained and experienced local deliverers who take the time to understand your unique farm business. We have a proven track record with this program. It was developed with farmers for farmers, and there are plenty of past participants you can contact to find out how it changed their business.
FPFP has a proven track record and can:
- work on any farm;
- deliver you more money;
- help you understand and manage risk;
- make your life easier; and
- save time.
We are happy to put you in contact with past participants if you would like to discuss how the program has changed their lives for the better.
Will the program be relevant to me?
Yes, the program will be relevant to you. We take the time to understand your individual farm and what you want to get out of the program. From this we are able to tailor the program to meet your needs. The FPFP experience doesn't finish at the end of the first two days of group learning. With continued support, including a minimum of five on-farm days, a one-on-one visit, as well as telephone support, we work with you to make sure you can apply all you have learned. This is a key element to the high success rate of the program.
I don't want to go back to school!
It's not like going back to school. Every FPFP officer is a adult education professional. They have experience working with a range of farmers and understand farmers are practical people. The learning environment is built around practical discussions. One of the highest priorities for each program is to ensure all participants are comfortable with the learning environment, with an strong focus on practical knowledge, skills and tools. We appreciate and draw on your life experiences to ensure all learning is relevant to you and your farm business.
So before you hear yourself say you can't afford the time or any other excuses, consider if you honestly think you can afford NOT to get involved?
What are you waiting for? Invest in a telephone call to see if this program is for you, it could be the best investment you've made in years.
There will be programs run in the Cohuna and Girgarre regions starting in May. For more information or to register your interest please contact Tom Farran at DEPI Tatura, telephone (03) 5833 5297 or email email@example.com.
Q: What's black and white and red all over?
A: A zebra with a rash.
Q: Why did the clock get sick?
A: It was run down.
Q: How do you make milk shake?
A: Give it a good scare.
Q: What colour is a burp?
Q: What's red and flies and wobbles at the same time?
A: A jelly copter.
Q: Why was the broom late?
A: It over swept.
Protecting the Farm Business from the Carbon Tax - Is the CFI the Solution?
Lyndal Metcalf, DEPI Echuca and Neil Baker, MDF Co-operative Manager.
In last month's edition we discussed the potential impact of the Clean Energy Futures legislation (carbon tax) and the Carbon Farming Initiative (CFI) to dairy farms. The initial impact of the carbon tax on the dairy industry from June 2012 could result in an increase in average farm costs of between $5,000 and $7,000 per annum if farmers do nothing different.
However, there are actions you can take on farm to minimise these increases whilst reducing carbon emissions and potentially also selling carbon credits for extra income through the CFI. Using the Macalister Demonstration Farm (MDF) Carbon Emissions Reduction Plan examples, we will explore some of the practical actions you can take on farm.
What does the Carbon Tax mean for the MDF farm business?
The MDF is a 72 hectare irrigated perennial ryegrass pasture farm in the Maffra Irrigation District in Gippsland, milking about 290 cows. The farm has high pasture consumption of 13-14tDM/ha/year and feeding concentrate supplements of around 2tDM/cow/year.
As agricultural carbon emissions will not attract a carbon tax, any effort to reduce on farm emissions will be voluntary. However, the carbon tax will result in some increases in input prices so the focus of efforts is to protect the farm business first. The Victorian DEPI has conducted modelling to estimate the impact of a carbon price of $20/t CO2e. It is estimated there will be rises in feed costs by 1.5 per cent, fertiliser and farm chemicals by 2 per cent and electricity by 16 per cent. Based on these assumptions the financial impact using 2009-2010 input costs at the MDF is summarized in Table 1.
In 2009-2010 the MDF had farm operating costs of $614,000, so this represents a 1.25 per cent increase in costs. Perhaps this may not seem a lot in real terms, but as it all comes off the bottom line this equates to a 9.75 per cent decrease in farm Operating Surplus if the MDF makes no changes. It should be noted most of the anticipated increase in supplementary feed will be due to increased transport costs which won't be realised until the carbon tax is introduced onto the transport sector in June 2014. For the MDF the major increase to farm costs due to the carbon tax is electricity, so this is where initial efforts have been concentrated.
|Pre-carbon tax costs/year 2009-10||After-carbon tax costs/year||Increase in costs/year|
Reduction in the use of energy, like electricity or fuel, makes good business sense with or without a price on carbon emissions, so this should always be front of mind. The MSF did an on farm energy audit that highlighted cooling milk and heating water consume the largest amount of electricity (almost 70 per cent) in the dairy. It was decided this should be the focus of efforts to increase energy savings.
Alongside improving practices and keeping up good maintenance on equipment, the energy audit report identified a range of ways to reduce electricity consumption including low cost options such as adding insulation around the hot water system to help minimise heat loss. Larger investments suggested included installing or upgrading equipment such as:
- A heat recovery unit on the refrigeration compressor
- Increasing the efficiency of the plate cooler by installing a new high flow pump to increase the water flow rate
- Solar hot water systems
What have the MDF done to reduce energy use?
MDF first undertook practical low cost measures to increase energy efficiency such as improving insulation of the hot water service by installing a $50 piece of plywood on the metal frame under the tank to prevent heat loss.
A 450 litre 'Superheater' heat recovery unit was also installed on the refrigeration compressor. This unit increases the cooling efficiency of the milk refrigeration system and utilises waste heat from the milk refrigeration gases to pre-heat hot water for the dairy. Based on the impact of the carbon tax only, the payback period for this investment was less than 5 years but this is quickly falling as electricity prices continue to rise for other reasons. Since the installation of the heat recovery unit there has been a 20 per cent reduction in water heating and 18 per cent reduction in refrigeration costs daily.
Further investments under consideration are installation of a new plate cooler pump ($1,800) and possibly a solar hot water system ($17,200) but the recent loss of incentives makes this less attractive. If all of these measures are followed, a total investment of about $26,000 will reduce emissions by just 2.8 per cent which just falls short of the national target of 5 per cent.
The most effective way to reduce emissions and minimise the impact of the carbon tax however, was to buy renewable, so called 'green energy', from the electricity retailer. This change alone, with no upfront investment, will reduce emissions by 5.4 per cent. Green energy is a little dearer at present, however the gap will close quickly when the carbon tax arrives, as the switch will be made when the cost of coal-fired power is about the same as green energy. With other modest investments to reduce electricity consumption the electricity costs on the MDF will be insulated from the effect of a carbon tax. These sorts of decisions are exactly what the carbon tax and carbon trading is meant to lead to.
What about reducing on farm emissions and participating in the CFI?
Of the on farm emissions at the MDF, more than 72 per cent are from methane generated by rumen digestion. This leaves 14 per cent from indirect losses of nitrous oxide, 10 per cent generated by losses of nitrous oxide in dung and urine and less than 3 per cent generated by nitrous oxide loss from fertiliser. Many options to reduce emissions on farm are as simple as following best management practices to achieve greater production efficiency.
Currently there are limited methodologies approved for the CFI for farmers to participate in selling their carbon credits. Although, some methodologies including methane and nitrous oxide reduction for the dairy industry are being developed and may be ready for dairy farmers to participate in the CFI in the coming 18 months.
Reducing enteric methane through feeding cows
Some of the options explored by the MDF for reducing methane from cows were:
- Increasing feed conversion efficiency by feeding high quality supplements with pasture.
- Using high oil supplements to feed up to 7 per cent of the diet as oils. Research indicates every 1 per cent increase in oil fed reduces methane emissions by 3.5 per cent.
- Feeding probiotics like Monensin have demonstrated a reduction in methane emissions for short periods although they lose effectiveness with repeated application.
- High tech options for the future include a vaccine or biological control agent against methane producing organisms, and longer term animal and plant breeding to produce less methane without a loss in production.
A rough calculation:
For the MDF, increasing the oil content of the supplements only returned a net margin of 8c/cow/day for a 10 per cent reduction in methane. If you were to sell the carbon credits for this methane through the CFI at $20/tonne CO2e, the net return would be 9.5c/cow/day. Too risky? MDF thought so.
Reducing Nitrous Oxide Losses from Paddocks
The key to reducing nitrous oxide losses from paddocks is to follow best management practices when using nitrogen fertilisers and managing effluent. In particular this means adding small amounts of urea often and avoiding application of urea to waterlogged soils. MDF performed trials using Green Urea over the November to March period and found they could reduce their application rate by 15 per cent to achieve the same growth. This practice reduced emissions by 4 t CO2e or 0.2 per cent for no extra cost and no loss in production.
Planting trees for Carbon Offsets
The growth rate of trees in dairy areas is likely to take up about 500 tonnes CO2e /ha over 60 years; equivalent to an average of 8.3 tonnes/ha/year. For the MDF with an annual EBIT of $1,800/ha/yr, the carbon price would need to be $220/tonne CO2e after costs to make substitution worthwhile. Trees will still be planted on the MDF in unproductive areas or for production benefits, but not primarily for selling carbon.
What about soil carbon?
Improving soil carbon is good for production, but selling the carbon credits for it is very high risk in our variable climate. There is very little to gain as dairying is an intensive, high productivity system using improved pasture in higher rainfall or irrigated areas – organic carbon levels are already quite high (MDF 5.5 – 7.2 per cent).
Australia's Carbon Farming Initiative
Participation in the CFI is voluntary. Farmers can:
- Do nothing and take the hit of higher input costs;
- Reduce or offset emissions and achieve financial gains but not apply for any permits; or
- Reduce or offset emissions and apply for and sell any permits.
The risk involved in selling carbon credits gained under the CFI are seen by the MDF as too high to be worth the investment when other lower risk actions are available.
Recommendations from the MDF experience
- Spend time considering your options and invest to protect the farm business first;
- Implement low cost actions first – they are usually best management practices that will make you money anyway;
- Invest in other emission reduction strategies as you can afford them;
- Stay informed and watch out for snake oil salesmen.
The Influence of Farm Size on Income, Costs and Profitability
Results from the Dairy Industry Farm Monitor Project 2006-07 to 2010-11
Daniel Gilmour, DEPI Warrnambool
"Get big or get out!" Sound familiar? The topic of farm size and the question "is bigger always better" continues to be hotly debated by agricultural economists and farm management consultants from around the world. In general the arguments for increasing size stem from the belief that by increasing size farmers will be able to take advantage of increasing returns to size meaning they'll be able to produce more on an increased size, yet with lower input costs per unit of production. The reduction in costs comes predominantly from spreading total overhead costs over a greater level of production.
In order to increase size, farmers have two options at their disposal; they can expand, that is purchase or lease more land, or intensify, which is working their existing land more intensively. Over the period from 1982-83 to 2002-03 the number of farms in Australia fell from around 200,000 to 125,000, while over the period from 1988-89 to 2008-09 average herd size increased from 103 to 342 cows and average farm size increased from 150 to 264 hectares. These changes indicate dairy farms have been both expanding and intensifying production simultaneously. In addition to this there has been an increase in the proportion of larger milking herds on Australian dairy farms and by 2003-04 the largest 30 percent of farms by value of output produced around 60 percent of total milk output.
The 2010-11 Dairy Industry Farm Monitor Project feature article examines the influence of farm size on farm profitability from 2006-07 to 2010-11. It investigates how income, costs and various physical key performance indicators vary across farms of differing size and how these variations flow through to the bottom line. A summary of the preliminary findings from the Feature Article is below.
Defining farm size
There are many ways in which to define farm size; hectares, value of output, or kilograms of product sold. In the following analysis we have classified farm size based on the number of cows milked. The following definitions align to the definitions of farm size used by Dairy Australia in the National Dairy Farmer Survey.
Table 1: Farm size category definitions
|Farm size||Cows milked|
|Medium||151 - 300|
|Large||301 - 500|
|Extra Large||> 500|
The distribution of farm sizes in the Dairy Industry Farm Monitor Project over the last five years is presented in the Table 2. Annually on average, 11 per cent of farms were in the small category, 48 per cent were in the medium category, 23 per cent were in the large category while 18 per cent were in the extra large farm size category.
Whole Farm Performance
The first section of the article looks at the whole farm performance of the farms of differing sizes over the five year period. It uses Return on Assets as a measure of performance. Return on assets is the earnings before interest and tax expressed as a proportion of the total assets under management. This figure provides an indication as to how efficiently the assets have been used to generate profit.
Figure 1 illustrates that in general larger farms have generated higher returns on assets over the past five years. The one exception to this was in 2007-08 when medium farms recorded a return on assets of 10.3 per cent compared to 9.2 per cent recorded by large farms. Over the period average return on assets has been negative 0.6 per cent for small farms, 4.9 per cent for medium farms, 5.0 per cent for large farms and 7.1 per cent for extra large farms. Despite the strong performance of the extra large group it is worth noting individual farms within the medium and large groups recorded return on asset figures higher than the average of the extra large farms in each year.
With increases in farm size it is also worth pointing out that with increased size comes increased challenges. The number of management decisions regarding inputs, staffing, timing of operations and financing the business expand with each additional cow or hectare under management.
These risks were highlighted recently by Gippsland consultant John Mulvany who stressed the point that increasing milk production doesn't necessarily mean greater profit. When increases in production are less than the proportional increase in inputs diseconomies of scale occur.
The full article explores in depth the influence farm size has on income, costs and physical performance. To download a copy of the 2010-11 Dairy Industry Farm Monitor Project feature article visit www.dairyaustralia.com.au/dairyfarmmonitor or email firstname.lastname@example.org.
Figure 1: Return on assets (%) by farm size, 2006-07 to 2010-11
- Have you begun your pasture renovation program to make the most of home grown feed? Autumn is the time to get the foundations in to make the most of the coming season.
- Getting some soil tests done could be money well spent as knowing exactly what your farm requires will help ensure every dollar spent is worthwhile.
- Remember to leave enough time for the pasture to establish itself, rather than grazing it as soon as there is some greenness and then suffering through the winter due to the pasture not being able to perform well.
- Check the ration of all classes of stock on the farm. Are their requirements being met? Pay particular attention to the feed requirements of your autumn calving cows. They need more feed and higher quality feed in comparison to the spring calving cows in the herd.
- Carefully monitor freshly calved autumn cows for mastitis.
- Check if the liners need to be replaced – CountDown DownUnder recommends they should be replaced after 2,500 cow milkings.
- Make sure the plate cooler is working properly and you are using the coldest source of water possible. Check the condense fins are clean and not blocked with debris.
Postponed - Centre Pivot and Lateral Move Irrigation Course
Due to the recent flooding, the two-day Centre Pivot and Lateral Move irrigation course that was planned to be held in Numurkah in late March has been postponed and will now be held in April or May 2012.
There are still some places available in this nationally recognised course. If you would like more information or are interested in attending, please contact Rob O'Connor at DEPI Echuca as soon as possible, telephone (03) 5482 1922 or email email@example.com.
This four-day course assists dairy farmers with recruiting, retaining and developing people on their farm.
Tongala Community House commencing Tuesday, 1 May for four weeks.
For more information please contact Carol McFadzean, NCDEA, telephone (03) 5824 5535 or 0447 372 217.
Cups On Cups Off
The course runs over one and a half days with participants gaining a statement of attainment for the course and achieving the Level 2 - Milk
Livestock qualification. Topics include:
- How and why infections occur
- Practical mastitis control
- The importance of teat disinfection
- Reducing the risk of infection
- How to detect and deal with clinical cases of mastitis
- Best practice in milk harvesting
- The real cost of mastitis.
Kerang: 2 and 3 May
Tatura: 17 and 18 May
For more information please contact Wilf Reuther, NCDEA, telephone (03) 5824 5115.
Any feedback or comments are welcomed by the editor Leah de Vries (03) 5833 5223.
For previous issues of the Dairy Bulletin (and the former Target 10 Communicator) go to our website www.depi.vic.gov.au
Published by the Department of Environment and Primary Industries, Farm Services Victoria, Dairy Services Branch, March 2012
© The State of Victoria, 2012
This publication is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968.
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