Whole-Farm Economic Analysis of Medium-Sized, Single-Family Dairy Farms that Differ in their use of Purchased Chemical Inputs

Whole-Farm Economic Analysis of Medium-Sized, Single-Family Dairy Farms that Differ in their use of Purchased Chemical Inputs

Summary

Rationale:
Midwest dairy farmers are finding that alternative production and management practices, such as
Intensive Rotational Grazing (IRG), can help minimize capital investments and input costs,
reduce labor requirements, increase profitability, and protect natural resources. However, one of
the obstacles faced by farmers making the switch to IRG is the lack of available farm-level
information, in particular, definite information on the transitional economic impacts. A number
of questions are unanswered, such as whether grazing is the best use for labor and land resources,
how grazing will effect production and how it would change capital investment strategies.

Objectives:
1) Collect detailed economic data on 16 participating farms.
2) Conduct comparative economic analysis of participating farms by their use of forage
management and chemical use practices.
3) Generate annual whole-farm economic analysis of each individual farm.
4) Facilitate the exchange of information and ideas among farmers, lenders, researchers, and
agricultural agencies.

Methods:
An economic comparison was conducted in 1991 and 1992 on 16 western Wisconsin and eastern
Minnesota family-sized dairy operations (8 intensive rotational grazing and 8 confinement.) All
costs and returns were compared on a whole-farm as well as individual crop and livestock
enterprise basis. The farmers provided annual detailed information about field work (machine
use, hours of labor, estimates of fuel use, etc.), purchased inputs and production. Similar
information was also provided on livestock enterprises, which included raised and purchased
feed use, purchased livestock services and inputs, labor requirements, and equipment and facility
use. In addition, machinery and equipment inventory values along with assessed land, building
and facility values were provided and updated annually. From these, each farm's variable, labor
and asset ownership costs (depreciation plus interest) were calculated. This analysis focuses on
gross margins (net cash return or gross returns less direct costs) and net returns (gross returns less
direct, fixed and opportunity costs).

Results:
Results indicate that those farms in transition to grazing systems were able to significantly
reduce cash input costs particularly crop expenses such as pesticide, fertilizer, fuel, and repairs.
Although milk production was less per cow for grass-based operations, farms using IRG showed
higher net cash returns. IRG farms had lower cost per acre, per head and per cwt. Whole-farm net
returns were comparable, demonstrating that reductions in chemical use do not significantly
lower overall returns.

Farmer Adoption and Direct Impact:
Over the last several years there has been increasing interest in Intensive Rotational Grazing
among Wisconsin farmers. For the most part, educational and outreach efforts have been
farmer-driven with nearly all significant research on grazing conducted by farmers themselves.
Numerous "grazing networks" have developed throughout the state independent of any
extension or university influence. In a statewide grazing conference held last spring, which was
organized by farmers themselves, nearly 500 farmers attended to exchange information on
grazing systems. Most of the presentations and workshops were led by farmers.

Additional Considerations:
Although looking for ways to reduce input costs is, and should be, part of a long-range farm
strategy, the price farmer receives for their products may play an even larger part in profitability
and ultimate survival. With milk prices at the current rate, many farmers are finding it hard to
keep pace with increasing input costs and rising family living expenses. IRG has demonstrated
that some of these costs can be reduced or eliminated. However, unless more far-reaching change
occurs in the organization and pricing structure of the dairy industry, more farmers will leave
farming. As long as farmers continue to discount the sale of their labor, tolerate below
production cost prices at the farm gate, and support unresponsive cooperative and other market
bottlenecks, the hoped-for benefits of IRG may have limited impact upon the future of Wisconsin
dairying.