An economic analysis of options for utilising additional land on a high rainfall Gippsland dairy farm

A range of options for utilising additional land on a dairy farm in the high rainfall area of Gippsland were analysed. The aim was to determine if additional land may assist the owners/operators in maintaining or increasing profit in the medium term (5-10 years). Historical trends have been towards fewer, larger, more intensive enterprises, and this project studies the value of additional land in continuing or altering this trend. A case study farm and spreadsheet modelling approach was used to examine these issues. Five different uses for additional land were identified by an expert steering committee, and were compared to the base farm system over a 10-year development period. The results suggest that expanding the milking area by purchasing additional land without a significant increase in herd size (2A) increased annual operating profit by approximately $70,000/year without increasing variability when compared to the base farm system. This was the only option examined to earn a high enough internal rate of return on additional capital investment to justify the investment without capital gains. Additional milking area with a substantial increase in stocking rate (2C) significantly reduced annual operating profit (by approximately $70,000/year) and notably increased the variability of these returns. The purchase of an outblock for conserved fodder production improved profitability, but would require some capital gains to be an attractive option on profit measures alone. The most appropriate changes to dairy farm businesses in response to changes in the operating environment will vary from farm to farm. The analysis indicated that simple following previous industry trends may not be appropriate on many farms. Optimising the amount of home grown feed and efficiently using purchased supplements are important, particularly if the milk produced is subject to the fluctuations of an export milk price.