Inside Milk
Mechanization costs erase economies of scale dairy cattle
The costs of mechanization and related matters have risen sharply on dairy farms in the past 5 years. They grew so strongly that they negated the benefits of continued scaling.
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This is evident from the figures accounting and consultancy firm Flynth suggests. These figures are calculated based on data from dairy farms in the agency's network. Another striking outcome is that labor costs have increased relatively little and are actually lagging behind the development of mechanization-related costs.
The total processing costs per company registered with Flynth have increased in the past five years from an average of almost €67.000 to €82.000 per year, which represents an increase of 23%. Part of this increase is explained by an increase in the number of dairy cows (+9) and an increase in the farm area (+5 hectares). However, this increase in scale did not outweigh the increase in processing costs per hectare and per kilogram of milk.
Think carefully about choices
Now that it appears that economies of scale do not always lead to cost benefits, it is important to think carefully when making choices in business operations, Flynth notes. The company has developed a tool that allows dairy farms to compare their operating costs with those of other farms of an equivalent size. Due to the sharp increase in mechanization costs, the critical selling price for milk on the average farm has increased by 12% in the past five years from €33,40 to €37,40 per 100 kilos of milk.