Pasture-Based Dairy Systems: Who Are the Producers and Are Their Operations More Profitable Than Conventional Dairies?

By Gillespie, Jeffrey; Nehring, Richard et al. | Journal of Agricultural and Resource Economics, December 2009 | Go to article overview

Pasture-Based Dairy Systems: Who Are the Producers and Are Their Operations More Profitable Than Conventional Dairies?


Gillespie, Jeffrey, Nehring, Richard, Hallahan, Charlie, Sandretto, Carmen, Journal of Agricultural and Resource Economics


U.S. dairy operations are sorted via a multinomial logit model into three production systems: pasture-based, semi-pasture-based, and conventional. Region, farm size, financial situation, and production intensity measures impact system choice. Analysis follows to determine the impact of production system on enterprise profitability. Region, farm size, and demographic variables impact profitability, as does system choice: semipasture-based operations were less profitable than conventional operations on an enterprise, per hundredweight of milk produced basis. Significant differences were not found in the profitability of pasture-based operations versus those using other systems.

Key words: dairy farm size, grazing, pasture-based dairying

Introduction

Pasture-based dairying in the United States has received renewed attention in recent years. Though the trend for a number of decades was a movement away from pasture-based to conventional dairy operations using total mixed rations (TMRs), at least two factors have revived the interest in pasture-based dairying: a boost in demand for organic milk that has coincided with an increase in the number of organic dairy farms, many of which are pasturebased, and a willingness of consumers and dairy product manufacturers in some U.S. markets to pay premium prices for milk from pasture-based (yet non-organic) systems. Significant interest in pasture-based dairying resulted in the recent opening of a research, extension, and outreach center at Michigan State University that will concentrate on the development of markets and supply chains for dairy products derived from pasture-based systems (Todd, 2007).

Concurrent with increased attention to pasture-based dairying has been rapid, dramatic structural change occurring within the U.S. dairy sector. As chronicled by MacDonald et al. (2007), this change is characterized by concentration of production onto fewer, but larger farms and geographic consolidation of production. The most notable changes in farm size have been outside the traditional dairy areas of the Northeast and Upper Midwest, largely in the West.

Increased interest in pasture-based systems while, conversely, a growing share of dairy farms are becoming larger and more intensive in new technology usage, raises the following question: Can pasture-based systems be competitive in today's dairy sector? Casual observation of the trends does not lead to a conclusion, as pasture-based dairy operations have been increasing in number in some parts of the United States and on the decline in others. In the 2000 and 2005 dairy versions of the Agricultural Resource Management Survey (ARMS), farmers were asked, "Did this operation use pasture or cropland to graze dairy cattle during the prior year?" In 2000 and 2005, 68.5% and 64.5%, respectively, of farmers indicated use, though the difference was not significant at the 10% level. Defining regions in table 1, those with > 50% of farmers indicating use included the Northeast, Appalachia, Southern Plains, and Corn Belt. Use in the Corn Belt declined from 2000 to 2005, while use in the West increased. Caution is suggested in placing great emphasis on these data to indicate the prevalence of pasture-based systems since they do not identify the extent of pasture use by farm - i.e., the ARMS queried respondents on the extent of pasture usage as a percentage of the forage ration only in 2005, the data set which is used in the current study.

The objectives of this study are to compare the characteristics of pasture-based dairy operations with those of conventional dairy operations and to determine whether there are differences in dairy enterprise and whole-farm profitability associated with conventional (non-pasture-based) and pasture-based systems. Dairy enterprise data from the U.S. Department of Agriculture's (USDA's) 2005 ARMS are used to conduct the analysis.

Defining Pasture-Based Dairying

Pasture-based dairying has been defined in a variety of ways, with the authors finding no clear consensus on a specific definition but general agreement on the overall concept. …

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