Effect of a carbon price on farm profitability on rain-fed dairy farms in south-west Victoria: a first look

In this study, the possible impact of different prices of carbon on farm profitability in two dairy farm businesses with different feeding systems was analysed. The feeding systems evaluated were a ryegrass pasture-based system (RM) and a complementary forage-based system (CF). The carbon charge was imposed on the systems as they currently operate and without the farmers making strategic changes in response to the tax. The study is a first-look approach in order to gauge the order of magnitude of a carbon charge on dairy systems if they were to continue to operate essentially under the same system following the impost of a cost of carbon emissions, and to gauge the likely size of incentives to respond. The main finding of this study was that net present value (NPV) of operating profit for each system over the five years was reduced by a price on carbon. The carbon charge of $15/t CO2-eq reduced the present value of the operating profits over the five years of operation by around 7% and 6% in the RM and the CF systems respectively. The carbon charge of $25/t CO2-eq reduced the present value of the operating profits over the five years of operation by around 11% in the RM and 10% in the CF systems. Farmers continually face rising costs of production, and respond accordingly. A price on carbon emissions, if ever applied to agriculture, would invoke responses to further increase productivity and possibly to seek offsets if genuine opportunities occurred