An analysis of operating profit margin: a valuable tool for New Zealand dairy farmers

Abstract

Operating profit margin (OPM) is a well-supported and easily interpretable parameter from the DuPont framework for understanding firm performance. It has not been widely applied in the dairy industry, despite its role in driving profitability, resilience and debt serviceability in low subsidy export-oriented farming systems. We analyse the drivers of OPM in depth for the first time on New Zealand dairy farms. We utilise a 10-year panel dataset developed by applying simulation methods to sample and population data, giving a representative picture of the industry. We group farms into quartiles of their long-run OPM performance and perform non-parametric Games-Howell testing to investigate differences between the groups. We then estimate individual and time fixed effects panel regression models for the entire sample and each quartile separately to examine the factors driving changes in OPM over time. We add to the limited literature on the factors driving changes in OPM over time.