An integrated assessment of business risk for pasture-based dairy farm systems intensification

The increasing cost/price pressures on Australian dairy farmers mean that they will need to increase on-farm productivity by producing more milk per ha from home-grown forage. Since there is a limit to the potential yield from pasture an innovative intensification system that integrates pasture and forage crops has been developed. This complementary forages system (CFS) has shown to increase milk production per ha from home-grown forage beyond pasture potential. An integrated modelling approach was used to assess the business risk of this system and compare it to a system with increased use of concentrates, the pasture plus grain (PG) system and to the initial situation, the Base system. First, based on the results of a 2-year CFS farmlet study, the systems’ milk production, forage and supplements consumption were simulated for a 140 ha farm using a decision support model. Second, the systems’ operating profit was calculated using a whole-farm budgeting approach. Third, the effect of inter-annual variation in key variables related to operating profit was assessed using a stochastic budgeting technique to calculate cumulative probability of profit as a measure of business risk. The selected variables were: price of milk, concentrates, urea fertiliser and irrigation water and yields of pasture and forage crops. The inter-annual variability of these yields was simulated for 100 years of daily weather data assuming limited irrigation using validated biophysical simulation models. The sum of the forage crops yields had a lower inter-annual variability than pasture yields, which were more closely associated to annual rainfall. This lower variability was due to the high water use efficiency of maize, prioritized in the irrigation. The risk analysis showed that milk price was the variable with the highest impact on operating profit followed by forage yields, whereas urea fertiliser had the lowest effect. When integrating all variables, PG showed the highest business risk, followed by Base and CFS, respectively. Very high standards were assumed for the management of forage crops, pastures and feeding and therefore these results may not apply to all dairy farmers. However, this integrative systems analysis approach highlighted the potential of intensification alternatives with a diversified home-grown forage base to reduce business risk compared to systems based on only pasture and increased use of concentrates.

► Innovative approach to assess business risk of pasture-based dairy intensification.
► Stochastic budgeting to assess effect of variation in prices and simulated forage yields on profit.
► Milk price had the highest impact on operating profit, followed by pasture and forage crop yields.
► A system with pasture and forage crops achieved lower business risk by diversifying yield risk.