29/11/2018 © IFCN 2018 | 1

The competitiveness of Latvian dairy

farmers on a European scale

IFCN Dairy Research Network, Kiel

Johanna Scholz,

Dairy Analysis Team

Scholz.johanna@t-online.de

29/11/2018 © IFCN 2018 | 2

Outline

1. Production

2. Prices

3. Farm structure

4. Farm level – IFCN farm comparison data

5. Summary

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Change of Milk Production

Latvia EU-28

Quota abolishment

Quota

2018 drought: Latvian milk production drop stronger than EU-28 average

2015/16: Drop of milk volumes in Eu-28, Latvia ?

Milk price crisis

Drought

Quota

Milk price crisis

Drought

Data source: IFCN Monthly data, covering 62 countries + real time estimates (Data until Nov. 2018)

Year-on-Year Change, in %

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0

5

10

15

20

25

30

Malta

Cypru

s

Luxem

bourg

Cro

atia

Slo

ven

ia

Gre

ece

Esto

nia

Slo

vakia

Latv

ia

Bulg

aria

Lithuania

Port

ugal

Hung

ary

Fin

lan

d

Cze

ch R

epub

lic

Sw

ede

n

Austr

ia

Belg

ium

Rom

an

ia

Denm

ark

Spa

in

Ire

land

Italy

Pola

nd

Ne

therland

s

United

Kin

gd

om

Fra

nce

Germ

an

y

28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1

Eu-28 Milk Production

+13% -16%

+50%

*percentage growth 2017 vs 2007

EU-28 milk production in mill t ECM, 1997-2017 +14%

+13%

+14%

Latvia 2017:1 mill t ECM milk

produced (0.6% of EU-28)

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0

1

2

3

4

5

6

7

0

50

100

150

200

250

300

1996

1998

2000

2002

2004

2006

2008

2010

2011

2012

2013

2014

2015

2016

2017

t / h

ead

/ y

ear

1,0

00 h

ead

National herd size and average

milk yield (cow, buffalo)

Number of milk animals

Average milk yield0.0

2.0

4.0

6.0

8.0

10.0

12.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

milk

an

ima

ls /

fa

rm

farm

s in

1,0

00

Farm number and size

Farm number

Average farm size0.0

0.2

0.4

0.6

0.8

1.0

1.2

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

mill. t

EC

M

Milk production

Milk not delivered to dairies and milkfrom other animalsMilk delivered to dairies

Milk supply drivers

Latvia: Growth driven by yield

-86%

+312%

-45%

+95%

Delivery share increased to 80% in 2017

+14% growth in milk volume achieved via productivity growth (2017:6.7 t/head/year (EU-28:7.2))

Herd size and milk yield Farm number and size Milk production

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Average dairy farm size per country

Source: D3.7 – IFCN Annual Farm Structure Data with time series and forecast

2017 vs 2007

Latvia 10 +5

Lithuania 7 +4

Finland 40 +18

Germany 64 +23

France 59 +19

UK 146 +33

CZ 211 +50

Global average: 3 cows per farm

EU-28 average: 19 cows per farm

Latvia farm size below Eu-28 average

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Small farms “Household farms” Key characteristics: Small farms 1-3 cows, dairy is one income source,

50% of the milk is consumed on the farm, 50% sold.

Key driver: Selling milk provides daily cash for family needs.

Medium farms “Family farms” Key characteristics: Work is mainly done by the family,

size in developed countries 10 up to 100/300 cows?

Key driver: Generate an income.

Large farms “Business farms” Key characteristics: Work is mainly done by employees,

size in developed countries > 300 cows?

Key driver: Generate the expected ROI.

Source: D3.7 – IFCN Annual Farm Structure Data with time series and forecast

Farm ownership & their key drivers

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16% of world milking animals in >100

classes

225,000 Business farms in 2017

Family farms own 21% of world dairy

animals

Households dominate with a share of

62% of world dairy animals

2017

Source: D3.7 – IFCN Annual Farm Structure Data with time series and forecast

Farm structure status 2017 IFCN Farm Structure Database >90 countries

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Structural changes in dairy animal numbers % dairy animals per IFCN Standard Classes

EU-28 Latvia Estonia

Moving from family to

business farms

Status 2017:

Ø farm size: 198

Farms: 3,000

Source: D3.7 – IFCN Annual Farm Structure Data with time series and forecast

Moving from household to

family farms

Consolidation of business

farms Milk delivery share

HH farms

family farms

business farms

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World market price vs. national milk prices

Farmgate milk prices with estimates for last 3 months

US

D/1

00

kg E

CM

(4%

fa

t, 3

.3%

pro

tein

)

Latvia milk price on

average 6 USD below

EU-28 average*

*(Lithuania: 7; EU-13: 3)

Latvian milk price

follows global

commodity price

developments (Latvia as

net exporter)

Latvia milk price takes

lows but not hikes of

price developments

close to world milk price

=> higher competitiveness

Source: D3.4 - IFCN Monthly Real Time Data and Farm Economics – 08/18

Data until August 2018

Average Jan-Aug 2018:

PL: 142 PLN /100 kg ECM

US: 135 PLN /100 kg ECM

DE: 149 PLN /100 kg ECM

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farm economics: Production: Leap year adjustment. February adjusted to 28 days

very good good poor very poor

For selecting countries for the charts, please type in the numbers (country codes) into the yellow boxes below.

0

5

10

15

20

25

30

35

40

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

Ja

n-1

4

Ja

n-1

5

Ja

n-1

6

Ja

n-1

7

Ja

n-1

8

Nat. farm gate milk price

National feed price -15%

-10%

-5%

0%

5%

10%

15%

20%

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

Ja

n-1

4

Ja

n-1

5

Ja

n-1

6

Ja

n-1

7

Ja

n-1

8

% change to previous year

Average annual % change

0

5

10

15

20

25

30

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

Ja

n-1

4

Ja

n-1

5

Ja

n-1

6

Ja

n-1

7

Ja

n-1

8

Margin over compound feed costs(0.3 kg/kg milk)

Bound - average 2007-2017

Latvia monthly data

farm economics: Production: Leap year adjustment. February adjusted to 28 days

very good good poor very poor

For selecting countries for the charts, please type in the numbers (country codes) into the yellow boxes below.

0

5

10

15

20

25

30

35

40

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

Ja

n-1

4

Ja

n-1

5

Ja

n-1

6

Ja

n-1

7

Ja

n-1

8

Nat. farm gate milk price

National feed price -15%

-10%

-5%

0%

5%

10%

15%

20%

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

Ja

n-1

4

Ja

n-1

5

Ja

n-1

6

Ja

n-1

7

Ja

n-1

8

% change to previous year

Average annual % change

0

5

10

15

20

25

30

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

Ja

n-1

4

Ja

n-1

5

Ja

n-1

6

Ja

n-1

7

Ja

n-1

8

Margin over compound feed costs(0.3 kg/kg milk)

Bound - average 2007-2017

Change in milk production on

monthly basis Margin Over Compound Feed

Costs in EUR/100 kg

Prices in EUR/100 kg ECM

*Feed price: 2018 data is

approximated based on global

Soybean meal and Corn prices

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Participating countries 2017

Details of analysis

No. of typical farm types: 177

Example: NZ-397= Farm with 397 cows

Time period: Calendar year 2017

Coverage: 53 countries; 89 % production

ID

What? Detailed comparison of farms

annually from 2000 onwards

Why? Estimation of competitiveness and

future dairy trends

How? Method

a) Typical farm concept

b) Model TIPICAL

c) Validation loops & Quality check

How to use?

Milk processor: Where to source milk;

sustainability of the farms in a region

Farm input companies: Economic

situation of the farms in different regions

and behaviour in the future

Source: D5.1 - IFCN Farm Economic Data

Farm comparison analysis done 2017

Countries where IFCN Typical farms are analyzed

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0

50

100

150

200

250L

V-2

8

LV

-20

9

0.000

2.000

4.000

6.000

8.000

10.000

12.000

LV

-28

LV

-20

9

0

500

1000

1500

2000

2500

LV

-28

LV

-20

9

Latvian farms: Farm description

LV-28:

• Average family farm

• 1 employee and family work

• Stanchion barn

• Bucket milking machine

• Local crosses of Latvian Brown and Holstein Friesian

• 86.5 ha land

LV-209:

• Large family farm

• Most work done by employees

• Free stall barn

• Parlour milking system

• 392 ha

• Holstein Friesian

Farm Size Milk Yield

0

50

100

150

200

250

LV

-28

LV

-20

9

0.000

2.000

4.000

6.000

8.000

10.000

12.000

LV

-28

LV

-20

9

0

500

1000

1500

2000

2500

LV

-28

LV

-20

9

Milk Output

kg m

ilk (

SC

M)

/ co

w /

ye

ar

0

50

100

150

200

250

LV

-28

LV

-20

9

0.000

2.000

4.000

6.000

8.000

10.000

12.000

LV

-28

LV

-20

9

0

500

1000

1500

2000

2500

LV

-28

LV

-20

9

No c

ow

s /

fa

rm

t m

ilk (

SC

M)

/ fa

rm

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USD/100 kg milk (SCM*)

Cost of milk production – 2017 On large typical farms in USD/100 kg milk (SCM*)

Low cost (< 30 USD): New Zealand, Ukraine, Argentina, Uruguay, Peru, South Africa

Moderate (30 – 50 USD): Latvia, parts of Europe, Australia, US, South Asia

High cost (>50 USD): Canada, Japan, Switzerland, Scandinavia, China

Source: D5.1 - IFCN Farm Economic Data

*Solid Corrected Milk, 4% fat + 3.3% true protein

Maybe snip to EU scale

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Cost of milk production – 2017 On large typical farms in USD/100 kg milk (SCM*)

Low cost (< 30 USD): CZ, UA, BY

Moderate (30 – 50 USD): LV, PL, DE, FR, UK, IE, ES, IT, DK, NL

High cost (>50 USD): FL, SE

Source: D5.1 - IFCN Farm Economic Data

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Total costs + returns of the dairy enterprise

LV-28 had higher

production costs than LV-

209, especially for labour

subsidies are key for

profitability in EU

LV-28 and FL-138 not

profitable

Based on 2017 data

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Labour Productivity on large farms

• High productivity in Europe, North America, Oceania

• Low productivity in Asia and Africa

kg milk / hour

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Labour Productivity on large farms

High productivity in Europe

kg milk / hour

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Labour Productivity

Source: D5.1 - IFCN Farm Economic Data

Labour Costs Average wages on the farm Labour productivity

US

D/1

00

kg m

ilk (

SC

M)

US

D/h

ou

r

Kg m

ilk (

SC

M)/

ho

ur

labour productivity <100: Low (e.g South Germany,No,FL,AT,CEEC)

mo

de

rate

mo

de

rate

high

high

low

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Land Productivity

Source: D5.1 - IFCN Farm Economic Data

Land Costs Rent for dairy land* Land productivity

US

D/1

00

kg m

ilk (

SC

M)

US

D/h

a

Kg m

ilk (

SC

M)/

ha

*weighted average, arable and

pasture

high

m

od

erate

lo

w

mo

derate

lo

w

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Structural changes in dairy animal numbers % dairy animals per IFCN Standard Classes

EU-28 Latvia Estonia

Moving from family to

business farms

Status 2017:

Ø farm size: 198

Farms: 3,000

Source: D3.7 – IFCN Annual Farm Structure Data with time series and forecast

Moving from household to

family farms

Consolidation of business

farms Milk delivery share

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Three dimensions

• Environmental

• Economic

• Social

The SDGs

DSF Criteria

Greenhouse Gas Emissions

Soil Nutrients

Waste

Water

Soil Biodiversity

Market Development

Rural Economies

Working Conditions

Product Safety & Quality

Animal Care

SDG: Sustainable Development Goals; DSF: Dairy Sustainability Framework

Sustainability – How to measure?

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The cow’s life – a consumer indicator?

Productive life is defined as years

the cow is in milk production.

Productive life + Age at first calving

= average age of a cow at time of

culling

Lifetime production is a

function of the productive years

and the milk yield per year

Core messages:

1. We can measure

different aspects of

sustainability

2. We can put

numbers to stories

and anecdotes

3. We can develop

ideas + strategies to

improve

Average age of a cow Average lifetime production

Source: D5.1 - IFCN Farm Economic Data

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IFCN Sustainability Indicators

Economic sustainability Social sustainability

Source: D5.1 - IFCN Farm Economic Data

Indicator: Costs from profit

and loss account – non-milk

returns + opportunity costs

=Costs of milk production

only

Indicator: Farm income

(including decoupled

subsidies) per hour family

labour input in relation to the

national minimum wage rate

LV-28 close to

minimum wage rate

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IFCN Dairy Research Center Network of IFCN Researchers Network of IFCN Supporters

A great number of people have collaborated since the year 2000

to make this presentation possible.

Thank you for your attention