ArticleVolume Number June 21, 2019
René Royagr.

« Everything costs more in dairy production! » : yes, but…

« Tout coûte plus cher en production laitière! » : oui, mais…

The last three or four years have been rather difficult from a financial point of view for dairy producers. This is certainly due to the decrease in the price received, but despite perceptions, not to the increase in the cost of production. At least, this was not the case from 2013 to 2017. The situation may be different for 2018, but data is not yet available.

Input prices have increased, but not the cost of production

Let us be clear: it is not that input prices have not increased, but rather that they have not necessarily been passed on in the cost of production.  How is that possible?  A gain in productivity, a more efficient use of structures or streamlining your operations can offset the effect of a price increase. 

For example, if the price of a kw/hour increased by 4% in the last year, but milk production in the barn increased by 6% without any modification to the equipment, then the cost of electricity per hectolitre produced decreased in that year, despite an increase in the electricity bill.

This phenomenon can be seen when analysing the evolution of variable costs in milk production from 2013 to 2017, based on the data available on Agritel.

Variable Costs $/hl produced

In the graph above, it can be seen that average variable costs per hectolitre (in black) increased from 2013 to 2015, then decreased thereafter and ended with a decrease of $0.30/hl in 2017, compared to 2013.

Production costs vary according to productivity 

When the information is broken down according to the productivity of the cows in the herd, we see that the group under 9,000 kg/cow (in red) has experienced a steady increase, which resulted in an increase of $1/hl in 2017, compared to 2013. 

The 9,000 to 11,000 kg (green) group followed the same trend as the average, but concluded the period with a slight increase of $0.23 while the 11,000 kg/cow (blue) group experienced a rapid decrease from 2014 to 2016 after showing a marked increase from 2013 to 2014 and a slight increase in 2017.  Despite everything, this group ends up with a saving of $1/hl vs 2013.  

So, the economic context is the same, but the impacts on the cost of production are different.  This may explain why some producers are more pessimistic than others. A small discussion among dairy business leaders could lead to finding solutions beyond problems. A simple question of attitude?  I am interested in reading your comments....