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
Down to Earth Advice Ltd
@down2earth_john
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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