Whether an operation evaluates their cost of production regularly or only when going through a big change, doing so can help a producer assess the financial health of their business, make informed purchasing decisions and set their price when marketing their own products.
In a webinar offered through Iowa State University, Marlene Paibomesai, dairy specialist from the Ontario Ministry of Agriculture, Food and Rural Affairs, gave results of a three-year study, conducted from 2019 through 2021, which followed 16 dairy goat operations across Ontario to analyze what made up the cost of production.
“People farm for different reasons, but financial health can create a lot of stress on people and businesses,” Paibomesai said. “Being able to really understand that cost of production can help you identify areas where you might be able to improve and relieve some stress.”
Funding for the project was provided by MNP LLP, an accountancy and business advisory firm in Canada, in an effort to gain a better understanding of the cost level in the industry, its observed variance and its competitiveness. This would allow them to assess risks that could affect the industry. They also developed a tool for producers to evaluate their own cost of production since a lot of dairy goat farmers were finding it difficult to earn a living as a producer and were obtaining off-farm jobs to supplement their income.
The 16 farms that were studied ranged in size from 109 to 897 milking does. This produced an average herd size of 445 does. After analyzing the liters of milk produced overall, the study determined an average production of 937 liters of milk per goat per year. The standard component rate was 3.8% butterfat and 3.4% protein.
The minimum cost of production in the study was found to be 89 cents per liter and the maximum cost of production was $2.39.
“We knew there was variability because we have different operations with different levels of technology and automation, but we were not prepared for this high level of variability,” Paibomesai said. “We only studied 16 farms, so it would be great to repeat this with more participants.”
A further look into where goat producers were spending their money revealed that feed cost accounted for over 60% of the cost of production. When breaking down the feed cost, dairy ration and protein supplement make up the majority of that expense, followed by milk replacer and doeling ration. This indicates that purchased feed is the biggest expense for dairy goat herds.
Knowing that feed cost is the biggest expense, the study looked at the return-over-feed cost by taking the farm revenue minus the feed cost.
“It’s important to look at this to have an understanding of the cost of feed on the farm since it is the highest expense,” Paibomesai said. “This will tell us how much is going to be left over for a producer to be able to fill some of those other expenses.”
With the milk price averaging around a dollar per liter throughout the study, there was an average of 46 cents per liter left over after feed costs were paid. This high feed cost was partly due to the amount of purchased feed that farms were feeding and the cost of that feed having increased during the study due to the coronavirus pandemic. Of all the farms in the study, 84% of them were feeding purchased pellets in the parlor.
The study also put a value on farm labor and analyzed how the labor efficiency changed over the course of the three years. Most of the labor was completed without hired help outside family members. There was also an average of 3,000 hours per person per year. Labor was valued at $25 Canadian currency per hour, which aligns with the fair market value of farm workers. Taking this into consideration, the cost of production was more than the price paid for milk.
“For perspective, this is not unique to dairy goats,” Paibomesai said. “We see this in a number of other commodities as well. It depends on how producers are compensating themselves.”
Labor efficiency was improved over the course of the study. This was determined to be a result of producers culling their low-producing animals and thus milking fewer goats but achieving the same production.
Other areas of expenses included vet, breeding, building repairs and overall overhead costs.
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