1. (R)evolution in Dairy Farming - Abstract
The aim of this paper is to illustrate the current situation of milk production and the developments since 1990. Finally 3 hypotheses about the development of the dairy sector, the dairy farms and dairy policy are created. The results are based on official statistics and the work of the IFCN Dairy Network where 27 countries are participating.
Milk production now - Where are we?
The structure of milk production is diverse. The farming systems differ in farm size (1 – 3,000 cows per farm), milk yield (< 1,000 kg to > 10,000 kg/cow and year), feed basis, milking technology and the linkage into the dairy chain. Small scale farms dominate in South Asia, Switzerland, Austria, Norway, Finland and Poland, where large farms provide most of milk production in the USA, Israel, Argentina, Oceania, Hungary, Czech Republic, Estonia, Denmark, Netherlands and UK). Cost of production range between 79 US-$/100 kg milk in Switzerland and 9 US-$/100 kg milk in Argentina.
Developments since 1990 - Where are we coming from?
Since 1990 milk production (cows and buffaloes) grew by 10 % or 0.8 % per year (FAO statistics). In most developed countries production remains stable whereas a significant growth was found nearly all other countries except the former communist countries which show a declining trend.
Declining farm numbers are the normal trend in all developed countries, whereas in developing countries, especially in Asia, the number of dairy farms increased.
An analysis of the farm structure development in selected EU countries, USA, Australia and China shows different schemes and direction of developments.
Hypotheses - Is there a pattern of the (R)evolution?
Based on the analysis and two case studies three hypotheses were created. The IFCN will continue its research to refine the hypotheses made and welcome all comments an contributions to this subject.
- Dairy sector development: Farm number grow and decline over time.
There is a turning point when the number of dairy farms reach its maximum. Until this point increasing milk production is a result of increasing farm numbers (South Asia). Beyond this point the decline of farm numbers is compensated or even over-compensated by growth in farm size.
- Dairy farm development: Growth in cow numbers per farm is a normal thing.
There is a take-off point, where exponential growth based on increasing cow numbers starts. Reaching this point means the start of a tremendous structural change in the dairy sector.
- Dairy policy impacts: Policy instruments can only slow down the process.
Policymakers start recognising the dairy sector after reaching the described turning/take-off points. With political instruments they can slow down the process but can not change directions of developments driven by economic forces.
2. Milk production now - Where are we?
Milk production has increased in the last 25 years by 32 % and can be classified as a complex production system. Moreover the way how milk is produced differs significantly around the globe. The farming systems differ in farm size (1 – 3,000 cows per farm), milk yield (< 1,000 kg to > 10,000 kg/cow and year), feed basis, milking technology and the linkage into the dairy chain. Therefore the first focus of this paper is to give an overview about milk production at the moment.
2.1 Methodological background
The basis for this paper is the IFCN research network. IFCN stands for International Farm Comparison Network and is a scientific co-operation between farm economists and the related advisors and farmers. The IFCN Dairy Report is produced since the year 2000 annually. It gives an overview about the status of dairy farming world-wide and summarises the results of the dairy research activities. In 2003 27 countries and 76 dairy farm types have been analysed. For details see www.ifcndairy.org.
2.2 Milk production in 2002
In 2002 milk production (cows and buffaloes) was concentrated in Western Europe, South Asia and the USA (FAO statistics). These regions provide 53 % of the world milk production. However, it is remarkable that milk production is found in all countries. The following analysis will focus only on the farms that have been analysed in the IFCN.
2.3 Dairy farm structure in 2001
Based on national statistics provided by the IFCN researchers a world map for dairy farm structure was developed (figure 2). The indicator chosen describes the share of cows in farms with more than 50 cows. This indicator clearly illustrates if milk is produced on small or large farms.
Asia: In the Asian countries analysed, milk is mainly produced in smaller farms. It is interesting to see that in China a significant number of larger dairy farms exist.
Europe: Europe shows a very diverse picture. In Ireland, the Netherlands, Denmark, Czech Republic and Estonia milk is mainly produced in larger farms. In Switzerland, Austria, Norway, Finland and also Poland most of the milk is produced in small farms.
North America: The share of cows in farms with more than 50 cows is 90 % in the USA and 53 % in Canada. The lower share in Canada might be the result of the milk quota system that exists there.
Southern Hemisphere: In all these countries nearly 100 % of the cows are kept in farms with more than 50 cows. Brazil is an exception. Based on estimations 84 % of the cows in that country are in herds with less than 50 cows.
Figure 1: Milk production in 2002
Source: FAO production yearbook (www.fao.org, March 2003).
Figure 2: Dairy farm structure in 2001 – Share of cows in farms > 50 cows
Source: IFCN Dairy Report 2003, national statistics and estimations.
2.4 Milk prices and cost of production in 2002
Method: The results are based on the IFCN analysis 2003 and cover the year 2002.
Milk prices of the selected countries differ significantly and range from 9 US-$ in Argentina to 50 US-$/100 kg milk in Switzerland (Figure 3). Prices in the EU and the USA are on a comparable level of 29 US-$/100 kg milk. Prices in Norway, Canada and Israel are above this level. Prices in the Asian countries, South America and Oceania range between 9 and 20 US-$/100 kg milk. Very low prices are found in Argentina, Pakistan and Brazil. Prices in the Central and Eastern European Countries show a quite diverse picture. While prices in Estonia and Poland are extremely low (17 US-$/100 kg milk) prices in the Czech Republic and Hungary are close to the level of the EU.
Cost of production: Based on the IFCN concept of typical farms and harmonised methods a cross country comparison is possible. Cost of production range between 79 US-$/100 kg milk in Switzerland and 9 US-$/100 kg milk in Argentina. In general, costs are related to the milk prices. Nevertheless we found countries, in which all farms analysed cover full economic costs like Hungary, Czech Republic and New Zealand, and countries, in which none of the farms analysed is covering costs (Canada, Brazil). Wide cost ranges within a country were found in Switzerland and the EU. Lower ranges with around 10 US-$/100 kg milk, are the case in Norway, Israel, USA, Poland, India and Pakistan. Australia is also in this category as some farms are affected by the drought.
Figure 3: Cost of milk production and milk prices in 2002
3. Developments since 1990 - Where are we coming from?
3.1 Milk production 1990 - 2002
Since 1990 milk production (cows and buffaloes) grew by 10 % or 0.8 % per year (FAO statistics). Nevertheless the development within countries differs significantly. The following simplified clusters (not documented by a graph) can be made :
Declining production: Milk production decreased in the former Sowjet Union and all Central and Eastern European Countries. This was a result of the transition period.
Static production: This was the case in nearly all countries that operate with a milk quota regime: European Union, Switzerland, Norway and Canada.
Rapid growth: An annual growth rate with more than 2.5 % per year was observed in Oceania, South America and Asia. In some case growth rates are above 5% per year.
3.2 Number of dairy farms 1990 - 2001
In the developed countries, the number of dairy farms per country is a key variable that is relevant for the agricultural policy makers and also for the farmer unions. Therefore it is interesting to see how these numbers have developed under the various dairy productions systems, and political and economic surroundings (Figure 4).
- Decline in number of farms: Rapid decline of farms can be observed in nearly all European countries and North America. The reduction in the number of dairy farms by 5 % per year (> 50 % in 10 years) is typical. Slower structural change is found in countries that significantly support their farming sector (Norway, Switzerland, Austria).
- Growth in number of farms: The number of farms grew in the Asian countries as households and small farmers entered into dairy farming. The increase in Estonia and the Czech Republic can be explained by the transition process. Private farms became established and entered the dairy sector.
General conclusion
It seems that farm numbers grew (in Asia) or remained stable (in Oceania) in countries where the involvement of policy (supporting agriculture) was very low.
Comparing the structural change in the USA (no quota) and the EU it can not be defended that the quota policy has “saved” farms in the last 10 years.
Figure 4: Number of dairy farms 1990 – 2001
Source: IFCN Dairy Report 2003, national statistics and estimations.
Figure 5: Structure of dairy farms in selected countries 1990 – 2001
3.3 Structure of dairy farms in selected countries 1990 – 2001
Besides the development of farm numbers the structural change within the remaining farms is interesting to analyse. Out of the 27 countries analysed 6 are presented here.
In the Netherlands, the number of cows in farms with less than 50 cows have reduced significantly, whereas the number of cows in the larger size classes remained stable. This means that the larger farms had a static development and did not grew in the past (average farm size in the size classes remained stable).
In Germany the structural change was split into two developments. Small farms (< 50 cows) stopped farming while the number of cows kept in larger farms increased significantly. It is interesting to observe that the size class with more than 200 cows is declining. This can be explained by the structural adjustments in Eastern Germany, where a lot of larger farms stopped milking cows. Looking at West Germany only shows that cow numbers in the size class >200 cows are increasing similar like in Netherlands and Denmark . It should be mentioned that in 2001 50 % of the cows are kept in farms with less than 50 cows per farm and 14 % in the class > 200 cows.
In Denmark the structural change was even more radical than in Germany. In 1990 most of the cows were held in farms with 20 - 49 cows. In comparison to the other EU countries the farm numbers declined the fastest. This decline was compensated by the increase of cows in the size class 100 - 199 cows (+ 400 % since 1990). Finally it is interesting to see that in Denmark and the Netherlands only 2 - 5 % of the cows are held in herds with more than 200 cows.
In the USA the cow number is increasing continuously since 1993 in the herd size with more than 200 cows. In 2001 51 % of the cows are in this size class and 26 % of the cows are even in herds with more than 1000 cows. Since 1998 the US census has segmented the size classes > 200 cows in 5 groups to monitor the developments of the very large farms.
Australia has increased milk production since 1990 by 80 % (USA + 12 %). As farm structure statistics for Australia are not available for the whole country the focus was on the State of Victoria which provides 63 % of the national milk production. The growth of milk production was mainly provided by increasing herd sizes (the size class 150 to 249 cows + 100 % and size class with more than 250 cows + 400 %).
Since 1990 China has more than doubled milk production. This growth base on an increase of small scale dairy farms (1 - 9 cows / farm). As a lot of small farms and in some cases landless households started dairy farming the number of farms in this size group more than doubled since 1990. This effect is defined as the “Livestock Revolution” in developing countries. Similar trends have driven the growth of milk production in the other Asian countries. The high share of farms with more than 200 cows is a result of state owned farms established by the government.
4. Hypotheses - Is there a pattern of the (R)evolution?
4.1 A pattern for the dairy sector?
Hypothesis 1: Dairy sector development: There is a turning point when the number of dairy farms reach its maximum. Until this point increasing milk production is a result of increasing farm numbers (Example: Asia). Beyond this point the decline of farm numbers is compensated (Example: EU) or even over-compensated by growth in farm size (Example: New Zealand).
Case Study: For the first hypotheses the case of New Zealand was analysed as this country is a competitive milk producer and the sector could develop without external influence like wars or domestic agricultural policies. To find a pattern a historic view of the last 100 years was chosen. The sector developments are described in the figure 6.
Figure 6: Milk production in New Zealand 1900 – 2000
The key developments are observed:
Milk production increased by 3180 % or 3.5 % per year. Reason: Increasing cow number + 1030 % and milk yields + 309%.
As farm numbers in 1900 and 2000 are the same milk production per farm increased by 3113%.
At the turning point New Zealand had 71,000 dairy farms.
From 1900 to this point the farm numbers increased by 500 %. Increasing milk production was mainly a result of the establishment of new farms.
From the turning point to the year 2000 the number of farms declined by 80 %, and milk production per farm increased significantly (from 228 to 3313 in index terms). The farm size grew in index terms from 111 to 1007.
4.2 A pattern for dairy farm and policy developments?
Hypothesis 2. Dairy farm development: There is a take-off point, where exponential growth based on increasing cow numbers starts. This points defines the start of a tremendous structural change in the dairy sector.
Hypothesis 3. Dairy policy impacts: In general policymakers start acting in the dairy sector after reaching the described turning/take-off points. The main focus are farm incomes and farm numbers. With various political instruments they the process of structural change can be slowed down but can not change directions of developments which is driven by economic forces.
Case study: For these hypotheses a case study of one dairy farm is chosen. The farm selected for this case study is located in Germany, is in the dairy business without breaks since 1700 and has reliable records of the business development. Even if this farm can not be seen a typical for Western Europe it shows the potential of developments that can be achieved.
Figure 7: Case study: Dairy farm development since 1700
The key developments are observed:
1700-1900: Number of dairy cows (6 - 8) remained stable.
1900-1950: Revolution 1 = Growth to 17 cows (+ 115 %).
1950-2000: Revolution 2 = Growth to 190 cows (ca. + 1000 %).
2000-2050: Revolution 3?= Trend projection to 2000 cows (ca. + 1000 %).
The rapid developments of dairy farms in the USA and partly in Eastern
Germany since 1990 shows that such growth steps are technically possible and can be realised with 10 years under the required framework conditions.
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