Most farmers who’ve invested in wintering barns wouldn’t do without them now but they won’t necessarily increase profitability, according to preliminary findings of a DairyNZ study.
The Economic and Nutrient Loss Impacts of Constructing and Running Cow Housing Facilities – based on analysis of a selection of South Island farms – shows barns have advantages in terms of farm management and the environment because they can lower nitrogen leaching. But the paper presented to the Australian Agricultural and Resource Economics Society Conference in Rotorua in February indicates the jury is still out on whether investing in a wintering barn is a good financial move.
The study by DairyNZ senior economist Matthew Newman and AgFirst consultant Phil Journeaux, shows inclusion of a barn without intensification of the farming system will reduce nitrogen losses, but at a significant cost.
With good management and intensifying the farming system, the investment in a barn can be profitable but this is dependent on the milk price, feed costs and initial capital outlay.
But intensifying the farm system by adding more cows or feed, to make the barn profitable often erodes the environmental benefits.
“Overall, therefore the decision around a barn tends to be either/or; either you make money out of it, or you reduce the environmental footprint of the farm. It is difficult to achieve both”, says Matthew Newman.
The study showed the farmers involved generally invested in wintering barns for farm management reasons such as reducing pugging of paddocks, better utilisation of supplementary feed, better control of grazing management and feeding, shelter for stock during adverse weather (including hot summer weather), better working conditions, and to reduce the cost of wintering cows off over the winter. Many of these benefits are also captured by cheaper alternatives.
Financial and environmental considerations were well down the reasons for investing in barns.
The objective of the study was to investigate the economics of wintering barns, and the nitrogen leaching via Overseer®.
Data was collected from five South Island farms, two in Southland and three in Canterbury. Once the preliminary analysis was done the farms were re-visited to check on the assumptions made and data used.
The financial analysis used an investment cost-benefit approach calculating the Net Present Value and Internal Rate of Return over a 20-year cash flow, using a base discount rate of 8% real. The base milk price used was $6.50 per kilogramme of milksolids.
The analysis involved consideration of the capital costs involved, and any increased operating costs, offset by a reduction in some costs (e.g. less fertiliser) and increased milk solids production. In most cases the advent of the barn resulted in increased cow numbers and increased supplementary feeding levels. For most farms, there was a significant capital cost associated with the barn; more/new machinery and spending on other farm infrastructure associated with the barn (eg silage pits, extra concrete, effluent). However, the cost of similar barns varied significantly and the overall cost of this and associated infrastructure had one of the biggest impact on returns.
Incorporating a barn changes the system and most of the farmers in the study were taking 2-3 years to adjust the system to a level they felt was appropriate. They do require a change in management and more attention to detail, particularly around nutrition.
In general, farmers with barns are trading some of their climatic risks for financial risks, particularly servicing increased borrowings and sourcing appropriate supplementary feed.
Stage 2 of the study will include a further nine Waikato barns. A final report with results will be due at the end of March 2015.
This article was originally published in Inside Dairy March 2015