Economic resilience and environmental performance of dairy farms in the upper Waikato region

Dairy farming has impacts on receiving water bodies that have increased in New Zealand during the past two decades due to the intensification and expansion of the industry. As a result the industry has implemented a number of voluntary initiatives to address its environmental impacts. However, declining ecosystem health in the Waikato region means that these initiatives alone are unlikely to retard further decline. Farm system reconfiguration will be required to reduce diffuse nutrient, sediment and pathogen losses. This change will have to occur without significant disruption to farm profit and economic viability. To date most studies have considered single mitigations and the cost of change associated with each. The common notion held by farmers and industry is that if they are constrained by nitrogen leaching caps, business will become less viable. This study examined economic and environmental performance of 25 dairy farms in the Upper Waikato region. There were two components of the study: (1) the development of an environmental scorecard in order to quantify the risk to the receiving environment and (2) identification of relationships between environmental footprint based primarily on nitrogen (N) loss and economic resilience using Return on Capital (ROC) at a range of milk prices. I hypothesised that some farm configurations may result in lower environmental risk concurrently while demonstrating greater economic resilience. The participant group farmed in the Upper Waikato Catchment between Broadlands and Atiamuri on predominantly pumice soils where annual rainfall ranges from 1000 to 1350 mm. Overseer Version 6.0 was used to determine the nitrogen leaching from each of the farms, as a key measure of environmental performance. Nitrogen leached ranged from 15 to 48 kg N ha⁻¹, with an average of 31.8 kg N ha⁻¹. Low-risk farms were selected on the basis of leaching less than 30 kg N ha⁻¹ y⁻¹, as well as achieving a “low risk score” on the environmental scorecard. “Nutrient use efficiency” for the study farms ranged widely, from 18 to 60 kg milk solids (MS) kg⁻¹ N leached ha⁻¹, with an average of 39 kg MS kg⁻¹ N leached ha⁻¹. A range of agri-environmental indicators (AEIs) were selected to develop the scorecard to provide a comprehensive measure of the environmental risk associated with different farm management approaches. The AEIs were selected on the basis they were scientifically sound, quantifiable, referred to issues relevant at catchment scale, were acceptable to target groups, easy to interpret, and cost effective. Return on capital (ROC) was examined for the low-risk farms under a range of milk price scenarios, to test their economic resilience. Over two years (2010/11 and 2011/12) milk prices varied by ± 20%, and total pasture consumption altered by 10-30% due to seasonal effects. Profitability (ROC) for the 25 farms ranged from 2.5 to 9% at a $6.08 kg⁻¹ MS and N losses from 15-48 kg ha⁻¹ y⁻¹ with an average of 31.8 kg N ha⁻¹ year⁻¹. Pasture consumed per hectare ranged from 9.3 to 13 t DM ha.⁻¹ the study included three irrigated farms. The irrigated farms yielded an average of 20% more feed each year than the non- irrigated farms while the nitrogen lost from the irrigated farms was almost double that of the non- irrigated farms. To assess how management regimes influenced both nitrogen leaching and profitability, key economic, efficiency and risk parameters were analysed using a regression of ROC on other variables such as stocking rate, milk production and pasture harvested. Twenty-two farms were suitable for this analysis. The only significant factor (p < 0.05) underpinning ROC was a low cost of production (R² =0.81). For milk prices of $5.50 to $6.08 kg⁻¹ MS, the more profitable farms also had a higher tonnage of pasture consumed per cow. This correlation was not apparent at a higher milk price ($7.50 kg⁻¹ MS), suggesting that more intensive systems (less pasture and more imported supplement per cow) can be profitable at times of high milk prices as long as feed costs are well managed. Milk prices have averaged $6.30 kg⁻¹ MS over the period of 1995-2014 and in recent years have fluctuated by 25-30% between seasons, suggesting that farming systems will have to adjust their systems quite quickly to adjust to downside risks. Resilience as it relates to dairy farming includes provision for unexpected events and accounts for volatility of feed, milk price and seasons. This study reinforced that the more intensive dairy systems carry more cow bodyweight per hectare, are dependent on more bought in feed, and can perform comparatively strongly in years of high milk price. These systems can also be more vulnerable, however, with increased environmental risk requiring advanced mitigation strategies such as herd homes, stand- off facilities, supplementary feeding infrastructure and advanced effluent management systems. They also require greater capital investment that can lead to increased debt, compounding business risk. Agricultural “growth agendas” have been based on the notion that policy approaches will not curb development and will provide more production contributing to a higher national GDP. New farm systems will have to demonstrate high resource use efficiency, minimal environmental risk and robust economic performance to endure in what will be more challenging and volatile conditions