2012 11-27 de laval economics automatic milking

Investing in automatic milking

Economic considerations

Introduction

• Automatic milking systems sold since 1992• Generally accepted since 1998• More than 2,400 farms worldwide• More than 800 farms (4 %) of Dutch dairy

farms

• A farm is an enterprise and thus an economic unit

• How about costs vs benefits

Outline

• Economics of automatic milking: the factors

• Old studies• More recent studies• Real data• More than economics• Final notes

Benefits• Labor

– No more milking– Reduction milking time 50 % - 80 %

• Milk production– Increased milking frequency

• Udder health– Less overmilking– Separated quarters– Increased milking frequency– ….

Increased milk production

From 2X to 3X:

• 6-25 % increase in milk production

• The Netherlands 12 %.

Sources: Allen et al., 1986; Amos et al., 1985; DePeters et al., 1985; Erdman and Varner, 1995; Hogeveen et al., 2000; Klei et al., 1997; Poole, 1982; Waterman et al., 1983

0

1

2

3

4

5

6

7

8

0 2 4 6 8 10 12 14 16 18 20 22 24

length of milking interval (hours)

freq

uenc

y (%

)No 3X!!

2.8 X (average)

Adjusted production effect• Said to be 5-10 %

Adjusted production effect• Said to be 5-10 %• Reality (306 herds, 111,746 cows):

Source: Wade et al., 2004

Adjusted production effect• Said to be 5-10 %• Reality (306 herds, 111,746 cows):

Source: Wade et al., 2004

Disadvantages• More control tasks• Replacement value (investment)• Depreciation time• Maintenance• Energy and water• Udder health

– More cows per cluster– Milking intervals– …….

Outline

• Economics of automatic milking: the factors

• Old studies• Recent studies• Real data• More than economics• Final notes

Three different studiesUK

Cooper and Parsons, 1995

Farm seize 125

Labor savings

18 %

Milk production

10-15 %

Room for investment

€ 175,000/125 cows

Three different studiesUK Netherlands

Cooper and Parsons, 1995

Dijkhuizen et al, 1997

Farm seize 125 86

Labor savings

18 % 70 % of milking

Milk production

10-15 % 10-15 %

Room for investment

€ 175,000/125 cows

€ 141,000/86 cows

Three different studiesUK Netherlands US

Cooper and Parsons, 1995

Dijkhuizen et al, 1997

Armstrong and Daughterty,

1997

Farm seize 125 86 1,000

Labor savings

18 % 70 % of milking

>70 % of milking

Milk production

10-15 % 10-15 % -

Room for investment

€ 175,000/125 cows

€ 141,000/86 cows

$US 21,000/40 cows

Outline

• Economics of automatic milking: the factors

• Old studies• More recent studies• Real data• More than economics• Final notes

Four different studiesNL

Arendzen and Van

Scheppingen, 2000

Farm seize1x106 kg quotum

Labor savings 10 %

Milk production

+ 10 %

Other costs -

Δ Farm incomeRoom for investment

€ 130,000

Four different studiesNL CA

Arendzen and Van

Scheppingen, 2000

Pellerin et al., 2001

Farm seize1x106 kg quotum

100 cows

Labor savings 10 %50 % of milking

Milk production

+ 10 % +5 %

Other costs -Energy,

penalties, feeding

Δ Farm incomeRoom for investment

€ 130,000 - $Ca 15,000

Four different studiesNL CA US

Arendzen and Van

Scheppingen, 2000

Pellerin et al., 2001

Engel and Hyde, 2002

Farm seize1x106 kg quotum

100 cows 120

Labor savings 10 %50 % of milking

31 % of milking

Milk production

+ 10 % +5 % + 11 %

Other costs -Energy,

penalties, feeding

Milk price, feed costs

Δ Farm incomeRoom for investment

€ 130,000 - $Ca 15,000 $US 375,000

Four different studiesNL CA US NL

Arendzen and Van

Scheppingen, 2000

Pellerin et al., 2001

Engel and Hyde, 2002

Wade et al., 2004

Farm seize1x106 kg quotum

100 cows 1200.8x106 kg

quotum

Labor savings 10 %50 % of milking

31 % of milking

5,5 hrs/week

Milk production

+ 10 % +5 % + 11 % 2 %

Other costs -Energy,

penalties, feeding

Milk price, feed costs

-

Δ Farm incomeRoom for investment

€ 130,000 - $Ca 15,000 $US 375,000 - € 16,000

3020

100

1510

50

0

50000

100000

150000

200000

Sensitivity

Difference:> € 111,000

Labour saving

(%)

Increase in milk yield

(%)

Maximal investment

(EUR)

Source: Arendzen and van Scheppingen, 2004

Outline

• Economics of automatic milking: the factors

• Old studies• Recent studies• Real data• More than economics• Final notes

Model ≠ reality

Data collection

• Study using Alfa Accountants data• 1,400 dairy farms• Economic data of 2003• AMS on farm before 2002• Comparison with matched CMS farms

– Invested in milking system in same year– Same milk quota– Same intensity (kg milk/ha)

• 31 AMS farms

Source: Bijl et al., 2007

Farm comparisonAMS CMS

Total land use, ha 60.0 61.7

Milk quota, kg 828,761 853,620

No. of dairy cows 105 110

Milk/cow, kg 8,011 7,894

Farm comparisonAMS CMS

Total land use, ha 60.0 61.7

Milk quota, kg 828,761 853,620

No. of dairy cows 105 110

Milk/cow, kg 8,011 7,894

Total labor FTE 1.45 1.87

Family labor FTE 1.26 1.69

Employee labor FTE 0.19 0.18

Source: Bijl et al., 2007

Farm comparisonAMS CMS

Total land use, ha 60.0 61.7

Milk quota, kg 828,761 853,620

No. of dairy cows 105 110

Milk/cow, kg 8,011 7,894

Total labor FTE 1.45 1.87

Family labor FTE 1.26 1.69

Employee labor FTE 0.19 0.18

Dairy cows/total FTE 74 59

Milk/total FTE, kg 586,241 459,117

Source: Bijl et al., 2007

No difference in margin

Source: Bijl et al., 2007

AMS CMS

Milk revenues 31.53 32.27

Miscellaneous revenues 2.82 2.27

Total revenues 34.35 34.54

Concentrate costs 4.67 4.83

Total feed costs 6.47 6.33

Health costs 0.84 0.93

Total livestock costs 2.01 2.25

Land use costs 1.28 1.46

Total costs 9.76 10.04

Margin on dairy production 24.60 24.50

Other costs higher for AMS

Source: Bijl et al., 2007

AMS CMS

Margin on dairy production 24.60 24.50

Gross margin 26.51 26.34

Contractor costs 2.55 1.81

Gas, water, electricity 1.24 1.01

Maintenance/insurance of:

- machinery and equipment 3.15 2.72

- land, buildings, installations 0.88 0.60

Total non-accountable costs 9.29 7.46

Available for rent, depreciation, interest, labor and profit

17.22 18.87

€ 15,500/farmExcluding € 14,000 higher depreciation and interest for AMS

AMS CMS

Total revenues 206,378 164,250

Total costs 57,796 48,463

Margin on dairy production

148,582 115,787

Gross margin 163,056 127,939

Available for RDILP 101,372 88,429

Results per FTE

Results per FTE better for AMS farms

But: Excluding the higher depreciation and interest for AMS

Another study

• Accon AVM• 400 Dutch dairy farms (North)• Data from 2010• 63 AMS farms

Source: Steeneveld et al., 2012

Hypothesis

• AMS leads in shift from labour to capital

Data envelopment analysis

• To obtain farm efficiency

Used parameters

• Capital– Number of cows– Land– Other capital costs

• Labour– Own labour (calculated)– Paid labour– Customoer work

• Output– All revenues– Minus variable costs

Farm description

  AMS (n=63) CMS (n=337)Total land use (ha) 71 70Pasture (ha) 57 59Milk quota (kg) 897,426 903,827Nr of dairy cows 110 113Milk per cow (kg) 8,297 8,111Fat (%) 4.47 4.44Protein (%) 3.48 3.53Total labor FTE 1.54 1.51Cow/ FTE 74 78Milk/ FTE (kg) 597,615 622,947

Economic results    AMS

(n=63) CMS

(n=337)Cows (number) Land (ha)

Total number of cows Total land use

71 

110

70 

113Capital costs (€/100 kg milk) Expenses on buildings

Depreciation on buildingsExpenses on machinery and equipmentDepreciation on machinery and equipmentMiscellaneous depreciationTotal capital

1.562.694.573.880.01

12.71

1.542.513.482.530.04

10.10

Labor costs (€/100 kg milk) Customer workPaid labor Own labor1

Total labor

2.890.466.95

10.30

2.960.707.06

10.72

Materials costs (€/100 kg milk) Total materials 17.17 16.99

Revenues (€/100 kg milk) Total revenues 44.87 45.33

Net output (€/100 kg milk) Total revenues – total materials 27.70 28.34

Replacement of labor?

Conclusions

• AMS farms had higher equipment costs• AMS farms had higher costs for energy

and water• Technical efficiency of AMS farms slightly

lower, but not significant

Outline

• Economics of automatic milking: the factors

• Old studies• Recent studies• Real data• More than economics• Final notes

Motivations to invest in milking farmers

• Address lists of all farmers who invested in 1998-1999– automatic milking– conventional milking

• Of both groups 60 farmers were interviewed in 2001-2002

Source: Hogeveen et al., 2004

Differences farm structure

AM-system CM-system Cows 87 91 Hectares 51 55 Quotum (kg) 752,000 738,000 Milk/ha 15.671 13.867 Milk/cow 8.682 8.118 No grazing 33 8

Personal circumstances

AM-system CM-system Age farmer 44.1 41.3 Married 55 47 Children 2.6 2.4 No successor 12 2 No need for replacement old system

25

11

Motivations automatic milking

Motivation Reason 1 Reason 2 Reason 3 % Less (heavy) labour 18 10 5 21 Flexibility 7 10 4 13 Milking more than twice 7 6 5 11 Less labour available 7 5 6 11 Need new milking system 9 2 4 9 Improved udder health 0 4 5 6 Higher milk production 0 6 3 6 Building new stable 2 4 1 4 Future 3 2 1 4 Other 7 10 7 15 Total 60 59 41 100

Motivations conventional milking

Motivation Reason 1 Reason 2 Reason 3 % Costs AM-system too high 18 10 5 21 Dependency AM-system 7 10 4 13 Uncertainty AM-system 7 6 5 11 Inflexible with growing 7 5 6 11 2nd AM-system expensive 9 2 4 9 Position in barn 0 4 5 6 Other 7 10 7 15 Total 60 59 41 100

Outline

• Economics of automatic milking: the factors

• The history• Recent studies• Real data• More than economics• Final notes

Large farms

• Special situation– Are working with personnel– Do have flexibility– Attitude of farmer might be different

• Some experiences– Netherlands: Availability of good labor– Mason-Dixon farms: Labor efficiency & future

• Other labor is needed (more/other skills)

Past developments

0102030405060708090

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year since introduction

Where are we now

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0 10 20 30 40 50 60 70

year since introduction

Conclusions• From an economic point of view:

– Less and less difference in economic effects of automatic milking

Different motivations play a role, – There is more than “pure” economics– Farm goals differ

• How to use this info– Farmers should be aware– Make decisions using good information

Where are we now