An economic evaluation of long-term sustainability in the dairy sector

Abstract

AbstractThis paper addresses the problem of assigning economic weights to heritable genetic traits of dairy cows while taking all implicit natural resource values into consideration. To do so, a deterministic bio-economic model of a dairy farm enterprise driven by input probabilities of oestrous detection and conception rates that act through the calving interval is constructed. The model further accounts for biologically limiting factors of both livestock and land within a neo-classical economics framework of profit maximization. Departing from the more customary approach of obtaining gross margins to calculate levels of return in the agricultural sector, we employ a natural resource economics methodology where returns are set against an economic point of reference specified as the value of natural assets' productivity and terminal assets' resale value. Introducing the impact of farming intensity on soil fertility enables us to obtain long-run variations in natural asset values as affected by tillage intensity. Results show that economic weights are not constant over the range of changes in genetic improvements due to the non-linearity of the system induced by diminishing marginal product of inputs and finite carrying capacity of resources employed. These values, while invariant to area farmed, are however subject to variations in resource quality and therefore will reflect the sensitivity of long-term sustainability of the system to managerial decisions on intensity of operation. Results further demonstrated that achieving optimum levels of output while precluding the impact of intensity on land productivity can seriously reduce the time horizon over which sustainability can be maintained. Inclusion of the implicit costs of land use on the other hand tended to suggest optimum levels of output below those identified when only considering accounting data.