Expanding a dairy business affects business risk and financial risk

Dairy Australia

Type: PDF
Knowledge level: Intermediate

Farm Table says:

Financial risk can become a greater source of variability than price and yield risk.

This technical bulletin discusses the risk to dairy businesses as a result of expanding farm businesses.

As many farms have expanded, there is increased wealth and sometimes risk. The aim of this research was to consider three different expansion paths and then compare the wealth, efficiency of capital use and riskiness of each option.

The case study analyzed:

  • 300 milking cows with an average annual milk production of 6,500 litres/cow and 503 kg of milk fat and protein/cow.
  • 133 hectares of perennial pasture that was grazed by the milking herd.
  • Feed supplied through predominately grazed pasture, with 1.5 t/cow of grain fed in the dairy.
  • 2.3 full-time labour units employed in the business.
  • Well-managed and currently profitable.
  • Owned and operated by a young couple keen to expand their farm business.

The options analyzed were:

  • Current situation = 300 cows
  • Amalgamate current farm and farm next door = 600 cows
  • Replicate. Operate current farm plus a second separate farm = 600 cows

The options were then compared.

2014 - Australia - Dairy Australia
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