The cost-benefit

of marginal milk

John Roche,

Chief Departmental Science Adviser, MPI

©John Roche, MPI

©John Roche, MPI

Change in Irish milk

production

0

5

10

15

20

25

30

35

40

Nati

on

al m

ilkso

lid

s p

rod

ucti

on

, m

illi

on

s k

g

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

1.3 Million cows

1.5 Million cows

1.1 Million cows

Farmer’s have been misled!

• Pasture utilisation is most

important physical factor

for profit;

• Cost control is the most

important financial factor

for profit.

R2 = 0.42

0

500

1000

1500

2000

2500

3000

3500

4000

0 2 4 6 8 10 12 14 16

Estimated Grass utilisation t DM/ha

Ne

t p

rofi

t (€

/ha

)

Operating profit

increases with

declining operating

costs!

Operating

profit increases

with increased

pasture

utilisation/ha!

As long as I’m utilising all my

pasture, I do can whatever I want!

As long as my costs are low, I

can do whatever I want!

©John Roche, MPI

©John Roche, MPI

©John Roche, MPI

What is marginal milk?

It is the additional milk produced when you

make a change to your farming system

©John Roche, MPI

45,000 kg MS €150,000 €3.33/kg MSBase milk

Marginal costAverage costTotal costProduction

45,000 kg MS €150,000

52,650 kg MS €192,000

€3.33/kg MS

€3.65/kg MS €5.49/kg MS

Base milk

Scenario 1

Marginal costAverage costTotal costProduction

45,000 kg MS €150,000

52,650 kg MS €192,000

€3.33/kg MS

€3.65/kg MS €5.49/kg MS

€3.99/kg MS52,650 kg MS €210,000 €7.84/kg MS

Base milk

Scenario 2

Scenario 1

Marginal costAverage costTotal costProduction

©John Roche, MPI

Average cost hides marginal

losses

y = 5.15x - 15R² = 0.74

0

5

10

15

20

3 4 5 6 7

Mar

gin

al c

ost

of

milk

, $

/kg

MS

Total costs, $/kg MS

$5.60

$10.75

©John Roche, MPI

66

149

0

25

50

75

100

125

150

175

200

Low Medium High

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

Mar

gin

al M

S,

kg/h

a ab

ove

Lo

w in

pu

t

Input category

Mar

gin

al c

ost

of

add

itio

nal

milk

, $

/kg

MS

Marginal cost MS/ha RoA

Average of 3 years – 2011, 2012, 2013

©John Roche, MPI

$7.66 $7.50

0

25

50

75

100

125

150

175

200

Low Medium High

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

Mar

gin

al M

S,

kg/h

a ab

ove

Lo

w in

pu

t

Input category

Mar

gin

al c

ost

of

add

itio

nal

milk

, $

/kg

MS

Marginal cost MS/ha RoA

Average of 3 years – 2011, 2012, 2013

©John Roche, MPI

€5.00

€5.25

€5.50

€5.75

10 20 30 40

Co

st o

f m

argi

nal

milk

, €/k

g M

S

% of cow's diet from purchased feeds

€0.44

€0.45

€0.45

©John Roche, MPI

The hidden costs of feeding

y = 1.18x + 636R² = 0.99

500

750

1000

1250

1500

0 200 400 600 800

Var

iab

le &

Fix

ed

exp

en

ses,

€

/ha

Feed expenses, €/ha

Source: Ramsbottom et al. 2015 Journal of Dairy Science.

©John Roche, MPI

The hidden costs of feeding

y = 1.18x + 636R² = 0.99

y = 0.35x + 804R² = 0.9965

500

750

1000

1250

1500

0 200 400 600 800

Var

iab

le &

Fix

ed

exp

en

ses,

€

/ha

Feed expenses, €/ha

Source: Ramsbottom et al. 2015 Journal of Dairy Science.

©John Roche, MPI

The hidden costs of feeding

y = 1.18x + 636R² = 0.99

y = 0.35x + 804R² = 0.9965

500

750

1000

1250

1500

0 200 400 600 800

Var

iab

le &

Fix

ed

exp

en

ses,

€

/ha

Feed expenses, €/ha

Source: Ramsbottom et al. 2015 Journal of Dairy Science.

For every €100 spent on feed, total costs increase €153

©John Roche, MPI

Hidden costs?

Year Expenses(€/£/$)

Feed Total

Ireland 4 100 153

UK 1 100 162

Waikato 14 100 168

Canterbury 14 100 153

Northland 14 100 183

Average 100 161

©John Roche, MPI

Stocking rate 3.35

cows/ha

4.41

cows/ha

4.41

cows/ha

4.41

cows/ha

Supplements, t

DM/cow

- - 1.3 1.1

CSR, kg Lwt/t feed DM 86 113 82 84

MS/ha, kg 1,199 1,175 1,745 1,584

MS/cow, kg 357 267 396 359

Op profit/ha 2,544 1,845 1,390 1,812

Marginal milk, $/kg MS * 6.33 5.54

Marginal milk, $/kg MS * 7.97 7.81

©John Roche, MPI

Stocking rate 3.35

cows/ha

4.41

cows/ha

4.41

cows/ha

4.41

cows/ha

Supplements, t

DM/cow

- - 1.3 1.1

CSR, kg Lwt/t feed DM 86 113 82 84

MS/ha, kg 1,199 1,175 1,745 1,584

MS/cow, kg 357 267 396 359

Op profit/ha 2,544 1,845 1,390 1,812

Marginal milk, $/kg MS * 6.33 5.54

Marginal milk, $/kg MS * 7.97 7.81

©John Roche, MPI

Stocking rate 3.35

cows/ha

4.41

cows/ha

4.41

cows/ha

4.41

cows/ha

Supplements, t

DM/cow

- - 1.3 1.1

CSR, kg Lwt/t feed DM 86 113 82 84

MS/ha, kg 1,199 1,175 1,745 1,584

MS/cow, kg 357 267 396 359

Op profit/ha 2,544 1,845 1,390 1,812

Marginal milk, $/kg MS * 6.33 5.54

Marginal milk, $/kg MS * 7.97 7.81

©John Roche, MPI

Stocking rate 3.35

cows/ha

4.41

cows/ha

4.41

cows/ha

4.41

cows/ha

Supplements, t

DM/cow

- - 1.3 1.1

CSR, kg Lwt/t feed DM 86 113 82 84

MS/ha, kg 1,199 1,175 1,745 1,584

MS/cow, kg 357 267 396 359

Op profit/ha 2,544 1,845 1,390 1,812

Marginal milk, $/kg MS * 6.33 5.54

Marginal milk, $/kg MS * 7.97 7.81

©John Roche, MPI

Stocking rate 3.35

cows/ha

4.41

cows/ha

4.41

cows/ha

4.41

cows/ha

Supplements, t

DM/cow

- - 1.3 1.1

CSR, kg Lwt/t feed DM 86 113 82 84

MS/ha, kg 1,199 1,175 1,745 1,584

MS/cow, kg 357 267 396 359

Op profit/ha 2,544 1,845 1,390 1,812

Marginal milk, $/kg MS * 6.33 5.54

Marginal milk, $/kg MS * 7.97 7.81

©John Roche, MPI

Stocking rate 3.35

cows/ha

4.41

cows/ha

4.41

cows/ha

4.41

cows/ha

Supplements, t

DM/cow

- - 1.3 1.1

CSR, kg Lwt/t feed DM 86 113 82 84

MS/ha, kg 1,199 1,175 1,745 1,584

MS/cow, kg 357 267 396 359

Op profit/ha 2,544 1,845 1,390 1,812

Marginal milk, $/kg MS * 6.33 5.54

Marginal milk, $/kg MS * 7.97 7.81

©John Roche, MPI

Stocking rate 3.35

cows/ha

4.41

cows/ha

4.41

cows/ha

4.41

cows/ha

Supplements, t

DM/cow

- - 1.3 1.1

CSR, kg Lwt/t feed DM 86 113 82 84

MS/ha, kg 1,199 1,175 1,745 1,584

MS/cow, kg 357 267 396 359

Op profit/ha 2,544 1,845 1,390 1,812

Marginal milk, $/kg MS * 6.33 5.54

Marginal milk, $/kg MS * 7.97 7.81

©John Roche, MPI

Marginal cost of milk at NARF

for 100 ha farm

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

2015/16 2016/17 2017/18 Ave

To

tal fa

rm M

S

Grass PKE

$5

.34 $

6.3

8

$4

.18

$5

.30125g

107g 147g126g

©John Roche, MPI

Marginal cost of milk at NARF

for 100 ha farm

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

2015/16 2016/17 2017/18 Ave

To

tal fa

rm M

S

Grass PKE

$5

.34 $

6.3

8

$4

.18

$5

.30125g

107g 147g126g

©John Roche, MPI

©John Roche, MPI

©John Roche, MPI

©John Roche, MPI

©John Roche, MPI

©John Roche, MPI

©John Roche, MPI

Marginal cost of milk at NARF

for 100 ha farm

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

2015/16 2016/17 2017/18 Ave

To

tal fa

rm M

S

Grass PKE

$5

.34 $

6.3

8

$4

.18

$5

.30125g

107g 147g126g

©John Roche, MPI

Marginal cost of milk at NARF

for 100 ha farm

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

2015/16 2016/17 2017/18 Ave

To

tal fa

rm M

S

Grass PKE

$5

.34 $

6.3

8

$4

.18

$5

.30125g

107g 147g126g

If MR = 75 g MS/kg DM

Cost of Marginal Milk = $8.80

©John Roche, MPI

The cost of marginal milk from

supplementary feeds?

Years Country €/kg MS c/L

Ramsbottom et al. 4 Ireland 5.60 0.45

Ma et al. 3 NZ 4.93 0.39

Macdonald et al. 3 NZ-research 5.14 0.41

Roche et al. 3 NZ-research 3.64 0.29

Roche et al. (adj) NZ-research 5.72 0.46

* All converted to Euro

©John Roche, MPI

Another cost! Environment

Two environmental concerns:

• Nitrate leaching

• Carbon footprint

©John Roche, MPI

©John Roche, MPI

Stocking rate 3.35

cows/ha

4.41

cows/ha

4.41

cows/ha

4.41

cows/ha

Supplements, t

DM/cow

- - 1.3 1.1

CSR, kg Lwt/t feed DM 86 113 82 84

MS/ha, kg 1,199 1,175 1,745 1,584

MS/cow, kg 357 267 396 359

Op profit/ha 2,544 1,845 1,390 1,812

Marginal milk, $/kg MS * 6.33 5.54

Marginal milk, $/kg MS * 7.97 7.81

Carbon Footprint, t CO2eq 1,535 1,667 2,246 1,982

(100 ha equivalent farm) +9% +46% +29%

Cost of marginal milk, $/kg MS - 7.97 8.81

Cost of marginal milk, $/kg MS - 6.33 5.54

©John Roche, MPI

Stocking rate 3.35

cows/ha

4.41

cows/ha

4.41

cows/ha

4.41

cows/ha

Supplements, t

DM/cow

- - 1.3 1.1

CSR, kg Lwt/t feed DM 86 113 82 84

MS/ha, kg 1,199 1,175 1,745 1,584

MS/cow, kg 357 267 396 359

Op profit/ha 2,544 1,845 1,390 1,812

Marginal milk, $/kg MS * 6.33 5.54

Marginal milk, $/kg MS * 7.97 7.81

Carbon Footprint, t CO2eq 1,535 1,667 2,246 1,982

(100 ha equivalent farm) +9% +46% +29%

Cost of marginal milk, $/kg MS - 7.97 8.81

Cost of marginal milk, $/kg MS - 6.33 5.54

©John Roche, MPI

One final cost!

In life, it’s not where you go; it’s who goes with you!

©John Roche, MPI

Summary

©John Roche, MPI

SummaryOn average, marginal milk from

supplements:

• more expensive than milk price;

• increases C-footprint;

• likely increasing N-footprint (or capital

expenditure);

• reduces Competitive and Comparative

Advantage.

©John Roche, MPI

Thank you

©John Roche, MPI

john.roche@downtoearthadvice.com

Down to Earth Advice Ltd

@down2earth_john

Contact me:

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“Rest satisfied with doing well, and leave others to

talk of you as they please” — Pythagoras

©John Roche, MPI

©John Roche, MPI

45,000 kg MS €150,000

52,650 kg MS €192,000

€3.33/kg MS

€3.65/kg MS €5.49/kg MS

€3.99/kg MS52,650 kg MS €210,000 €7.84/kg MS

Base milk

Scenario 2

Scenario 1

Marginal costAverage costTotal costProduction