report examines long-term productivity gains in Australian dairy products | Online farm


A new research project aimed at improving the understanding of dairy farm productivity and its relationship to profitability has been undertaken by Dairy Australia.

Gavan Dwyer and a team of agricultural economists from Marsden Jacobs Associates and other organizations were tasked with exploring the evolution of dairy industry productivity and its major determinants over the past two decades and the implications for the industry research, development and extension to improve agricultural performance. across Australia.

Drawing on detailed data from the Dairy Farm Monitor Project, the economic modeling expertise of Professor Chris O’Donnell of the Center of Efficiency and Productivity Analysis (CEPA) at the University of Queensland and Professor Glyn Wittwer of the Center of Policy Studies (CoPS) ​​and the University of Victoria, the project is studying agricultural performance in more detail, with the aim of better understanding the industry’s drivers of agricultural productivity.

Helen Quinn, Farm Data Manager at Dairy Australia, said: “This is an economic research project that we have undertaken to advance the discussion on the profitability of the Australian Dairy Plan which has highlighted that the productivity of dairy farms has been stable over the past decade.

“The work aims to improve our understanding of productivity at the regional and state level, to understand the impact of climate and to understand how dairy products compete with other agricultural sectors for land, water and water. other agricultural inputs. “

Obtaining this information will enable the dairy industry to be in a better position to shape and influence the drivers of productivity and reveal the implications for competitiveness under different scenarios.

“The project aims to provide the dairy industry with a better understanding of productivity growth on Australian dairy farms,” ​​she said.

“This is important, because in the long term, productivity and profitability are closely linked.

“Productivity focuses on the aspects of profitability over which a farm manager has more control.

“More specifically, the efficiency with which resources and inputs are used to produce milk.

“In general, a more productive farm is a more profitable farm.”

The modeling techniques used in the study have never been used to measure productivity in the dairy industry before.

One of the main differences with the approach used here is that this study analyzes the link between agricultural productivity and profitability.

The great advantage of these techniques is that they reveal the determinants of the evolution of profits (such as technical efficiency or technical progress) rather than the consequences of the evolution of profits (for example, the return on total profits. assets or return on investment).

Why is this important – because it will reveal to the industry in terms of strategic importance, areas for improving future productivity that will lead to better agricultural profitability throughout the industry.

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A recent analysis of the relationship between profitability and productivity of dairy farms under the Australian Dairy Plan found that while productivity increased an average of 1.6% per year over the past 40 years until 2017-2018, the growth rate slowed down during this time.

For example, in the decade before the deregulation of the dairy industry, agricultural productivity growth was robust at 2% per year.

However, in the post-deregulation period (2000-01 to 2017-18), productivity growth slowed to a rate of around 0.7 pc per year.

In the last calculated decade (2009-10 to 2017-18), the productivity of Australian dairy farms has not increased.

The report

The Dairy Productivity Report found that dairy productivity growth has been weak over the past two decades.

An analysis of this growth using sophisticated statistical techniques reveals that while technical progress and technical efficiency have stagnated, farmers are already very technically efficient using existing technologies.

The report found that dairy farmers are on average 91-93% technically efficient in Australia.

With evidence of constant scaling back over the period of analysis, this means that productivity is primarily shaped by farmers who change their mix of inputs and outputs in response to changing circumstances.

There are indications that farmers are gradually adapting to weather and climate variability.

During the period of analysis, changes in the profitability of dairy products were driven by changes in the terms of trade (the ratio of prices of products to prices of inputs) rather than changes in productivity and, when the terms of trade weakened, changes in productivity did not compensate for this. weakness.

The data in Figure 1 shows little change in total factor productivity (TFP) for the Australian dairy industry since 2013/14. There is some difference between states, with Tasmania and South Australia showing a slight increase in TFP during this period, while the other states changed little over this period.

Figure 1: Evolution of Total Factor Productivity (TFP) for the Australian Dairy Industry by State

Presentation of the first results

For three weeks in May 2021, the first results of the project were presented to hundreds of dairy farmers across Australia at an online dairy productivity forum.

Gavan Dwyer was on hand to develop concepts involved in productivity analysis, present data and elaborate on long-term trends.

ORDERED: Gavan Dwyer, Associate Director of Marsden Jacobs, has been tasked with exploring recent and long term trends in the dairy industry.

ORDERED: Gavan Dwyer, Associate Director of Marsden Jacobs, has been tasked with exploring recent and long term trends in the dairy industry.

While the first session focused on presenting the report itself, the following two sessions allowed industry experts and insiders to discuss their responses to its findings.

After presenting the findings of the report, industry experts such as Dairy Australia President James Mann, University of Melbourne Agricultural Economics Professor Bill Malcolm and dairy farmers from across Australia were invited. discuss the analysis of the report and how it reflects their understanding of productivity, as well as how to ask questions.

Forum participants were also invited to ask any questions about the report.

While the report was able to present some striking findings on the state of productivity in the dairy industry, industry experts attending the forum saw the potential for opportunity.

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Australian Dairy Farmers Director Colin Thompson said: “I believe productivity growth will come from understanding and harnessing the potential of our resources: our land, our water, our cows, our people and modern technologies and knowledge that have been developed in recent years. .

“The key is to invest in skills and opportunities that create greater efficiency and better returns on our assets. It’s not about reducing inputs, it’s about making them work better.”

Western Australian dairy farmer Jacqui Biddulph told the forum that “the things that stood out to me about the report are that the vast majority of Australian dairy farmers have adopted the technologies available in the past 20 years, and they implement them and implement them well.

“However, we’ve lived with tremendous volatility. We’ve had droughts, floods, fires, high grain prices, high water prices, you name it, we’ve had it. these are also technologies that have helped farmers stay in their businesses. “

To watch the three sessions of the Dairy Productivity Forum and download the final Dairy Productivity Report that was presented, visit www.dairyaustralia.com.au/productivityreport. It also contains a list of questions that participants submitted and the answers to those questions.

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