This article summarises the key findings of the International Farm Comparisons Network (IFCN) for dairy in 2015 and the recently published IFCN Dairy Report 2015.

Among the many challenges in producing these comparisons is to provide them in a common currency, namely the US dollar (USD). Since the value of other currencies against the USD changes through time (and to differing degrees), this has an unavoidable impact on the comparison methodology. For ease of reference, we have included a euro-per-litre comparison in this article.

Milk production worldwide is carried out on around 121 million dairy farms (IFCN estimate), which stock 350 million milking cows and buffaloes. This means that the world’s average farmer keeps just three milk animals and produces 17 litres of milk per day per farm on average.

Of course, such global averages conceal a lot of diversity in dairy farm scale across the world. On the one hand, there are countries where there are less than three cows per farm and on the other hand in some countries dairy farms are much bigger and keep over 1,000 cows per farm.

Furthermore, across the world production systems also differ significantly in terms of farm size, housing, milking and feeding systems.

Click on the image to download the full-size map.

Global context

This article puts the Irish dairy farming system into a global context by focusing on how the typical Irish dairy farms compare internationally in terms of costs of production and returns with farms in other countries. For the purposes of the exercise, the typical average Irish dairy farm has 77 cows.

A simplified global overview on costs of milk production is shown in Figure 1. The illustration is based on the results of the typical average sized farm analysed per country in 2015. The average cost of milk production in 2015 over all countries analysed was $41/100kg milk (approximately €0.38/litre). Cost of milk production ranges from $9/100kg milk (approximately €0.08/l) in extensive farming systems in Uganda to $106 (approximately €0.99/l) for an average-sized farm in Switzerland. The results can be summarised as follows:

In summary: On average milk production costs for the year 2015 were lower than in 2014. As the milk price decreased to a larger extent than production costs, farm economics were difficult for many dairy farmers in the world in 2015.

In 2015, milk production costs (in national currency terms) continued to increase on most dairy farms in the world following a rise in price of major input items (feed, labour and land) in many countries. But contrary to the year before, these higher input costs were not counteracted by a higher milk price. Instead the milk price either remained stable or even decreased in many countries leading to lower profitability worldwide.

Cost of milk production 2005-2012

As the IFCN has been collecting and observing trends in costs and returns of milk production since 2000, a time series analysis of the data is possible. Observing the data for the period 2005-2015 shows a picture of extreme volatility in milk and feed prices in particular. Costs of milk production have increased in all countries through much of the period under examination. This is especially the case for countries like Poland, China, and New Zealand (NZ), where the value of the national currency has significantly strengthened relative to the USD and farm input prices for land, feed, and labour have increased significantly.

It is interesting from an Irish perspective to examine the position in NZ, as it like Ireland has an extreme dairy export orientation. The results reflect the situation of a typical average sized dairy farm from Ireland and NZ. In the year 2015, this NZ farm type had 349 cows and represented about 45 per cent of the farms and 68 per cent of the total dairy cow population in NZ. We compare this NZ farm type against the average sized Irish dairy farm, with 77 dairy cows in 2015.

In USD terms, milk production costs increased by similar percentages in both Ireland and NZ over the past decade. However, the source of the increase in both regions can be attributed to different reasons.

In Ireland the increasing costs over the period 2005 to 2015 can be attributed to a range of factors, most notably fertiliser, feed, debt servicing and replacement costs

In NZ, the rise in costs in USD terms can be explained by rising prices for land and labour in particular over the last ten years. The second driver in NZ was the appreciation of the NZD to the USD for most of the decade. (An appreciating national currency against the USD means increasing costs measured in USD terms.)

However, in Ireland the increasing costs over the period 2005 to 2015 can be attributed to a range of factors, most notably fertiliser, feed, debt servicing and replacement costs. In terms of exchange rates, the euro has generally been weaker against the dollar since the euro crisis broke out in 2009. So without the already mentioned inflation in individual costs items, the exchange rate movements on their own should have had a depressing effect on Irish costs in USD terms after 2009.

Both Ireland and NZ exhibited reduction in costs and milk prices in 2015, which can be attributed to currency depreciations against the USD, along with increases in scale in Ireland.

When measuring competitiveness it is vital that costs are not measured in isolation and returns should also be examined. Here the convergence of NZ milk prices over time towards the Irish price is noticeable. It is also apparent that in 2015 both the average Irish and NZ dairy farmer had total costs of milk production which were higher than average milk returns.

The IFCN is a global network of dairy researchers from 95 countries cooperating with over 100 companies representing the dairy chain. The IFCN is independent from third parties and committed to truth, science and reliability of results.

The main research focus of the IFCN and its core competence is in the field of milk production, milk prices and especially dairy farm economics. Further details: www.ifcndairy.org. Teagasc is the supplier of Irish data to the IFCN for dairy farms.

The annual IFCN comparison of typical farms around the world has been ongoing since the year 2000. The costs and returns outlined in this article relate to what is called “typical farms” in each region of the world.

A typical farm represents the most common production system in a country or a region. Usually, two typical farm types are used per dairy region – the first represents an average sized farm and the second is representative of a larger farm type for that region.

The typical farms are selected and validated by reference to accounting statistics and panels of dairy experts in each participating country.

ECM correction

As dairy farms around the world produce milk of very different fat/protein contents, the volume of milk produced per farm is standardised using the energy correct milk (ECM) approach to standardise milk volumes to 4% fat and 3.3% protein. This is essential for meaningful milk price comparisons.

Cost indicator: Costs of milk production include all costs from the profit and loss account of the farm. From this cost definition, the non-milk returns from sales of cull cows, heifers, calves, manure, etc. and also returns from coupled direct payments have been deducted. Furthermore, also the opportunity costs for own labour, land and capital are included. Importantly, the scope of this cost definition extends beyond the typical production cost definition that is often cited with reference to Ireland and other EU member states. For creation of the world cost of production map, the average size farm from each country was used to represent that country (eg a 77-cow farm in Ireland).