Identifying Bottlenecks to Profitability on Dairy Farms

Posted: June 5, 2006

Penn State Extension dairy educators across the state as well as faculty and staff from Penn State University’s departments of Agricultural and Biological Engineering, Dairy and Animal Science, Crop and Soil Sciences, and Veterinary and Biomedical Sciences have combined their expertise to create an innovative program designed to identify key opportunity areas limiting the profitability of Pennsylvania dairies.

Assessing revenue generation opportunities on dairy farms helps producers identify specific areas to target for in-depth troubleshooting on the farm operation. The Profitability Assessment for Dairy (PA Dairy) Tool was developed for that specific task. Using a combination of financial information and DHIA data, the Excel spreadsheet based program generates twenty-one farmspecific values and assesses these values against a series of industry benchmarks. The tool then provides a broad view of the farm’s profitability, and initially distinguishes whether profitability is limited more by the farm capital efficiency (i.e. use of capital) or operational efficiency (i.e. ability to generate milk revenue). Within the operational efficiency section, four management areas are further assessed for their potential impact on the dairy herd’s productivity and whole-farm revenue generation. These four management areas are Milk Yield and Components, Reproduction, Udder Health and Milk Quality, and Culling and Replacements. Once these management areas are ranked on their potential to limit herd productivity, the tool attaches revenue loss estimates to each. The PA Dairy Tool has been tested on over 50 farms across Pennsylvania on dairy farms ranging in size from 53 to 1035 cows.

What makes this program unique is its two-step, handson process. First, advisors are taught how to use PA Dairy Tool to systematically identify the factors on their clients’ dairies that are preventing them from achieving a better bottom line. Then, solutions to the bottlenecks uncovered in step one are identified through the use of the Drill-Down tools. These tools enable those with greater expertise to analyze the area that poses the greatest opportunity for profitability. For instance, if the PA Dairy Tool had identified reproduction as the area for greatest profit opportunity, the Reproduction Drill – Down is then used to determine exactly where the problem lies and what it is. The Reproduction Drill- Down will determine if the problem is related to heat detection or to conception rate and what the problem might be within that area and which group of cows may be most affected.

Importantly, the PA Dairy Tool provides an unbiased, comprehensive approach to identifying a dairy farm’s key opportunity areas to improve profitability. The PA Dairy Tool can give advisors a whole-farm view of the dairy operation for better identification of key weaknesses. Therefore, it can help advisors to work with producers to target and address the most costly bottlenecks in a dairy operation. The tool takes the expertise of dozens and objectively applies it to every farm on which it is run. Currently the PA Dairy Tool and the drill–down tools are being tested on dairy farms across Pennsylvania.

Laura Dininni, Program Coordinator, PA Dairy/Bottlenecks Project and Dr. Gabriella Varga, University Distinguished Professor of Animal Science, Dairy & Animal Science Extension