The dairy industry is continually facing new developments and technological advances. These changes include greater efficiency in the use of land, labour and capital. They have to a great extent been the result of scientific research. More regard to the animal’s welfare has been stressed. There  is also a better understanding of the requirements of the cow during her lactation. This has resulted from a better understanding of the process of her lactation. This has been stressed in our series of lectures on the feeding and management of the cow. It is now time to look at all the economic aspects of dairy farming.

This lecture will explain the details of records to be kept of the dairy unit in order to successfully assess its financial performance. Since we are talking about economics, it is essential to identify the various units within the dairy, and to concentrate on that aspect which is most important. It must be realised that sound financial management in the dairy unit is also vitally important. This, of course, is directly related to the total yield or production of the herd and the supply of food which accounts for 66% of the input costs.

Another important aspect which must be mentioned is the herd replacement policy and the analysis of herd performance. Remember, the main aim in dairying is to manage the herd to suit the resources of the particular farm concerned.

Figure 1: on page 80, the lines marked with arrows represent internal transfers and the dotted lines sales of products. It is essential that you should fully understand this. You will also notice that the dairy is made up of a series of closely related units which cannot be separated from each other. An efficient manager will have detailed records of each of the units. But the most important single unit  is the one which provides for the sale of whole milk. This is the main source of income within the complicated enterprise. The main aim of the dairy farmer should be to have a small, but highly productive milking unit, which he can manage efficiently. He does not achieve anything worthwhile by having a large unit which is not fully productive. The lesson is very clear. The farmer should look  at his resources and plan accordingly. The resources which should be considered are as follows:

Land requirements per cow for:

  • Grazing;
    • Production of hay and;
    • Production of silage.
Labour requirements:

Dairy farming makes heavy demands on labour.

  • Labour management and;
    • Labour incentive schemes


  • Land;
    • Buildings;
    • Machinery and equipment;
  • Livestock and;
  • Costs involved in milk production

The dairy farmer’s main concern is to ensure that he obtains a profit from each of his cows and that he maintains the level of profit by top-level management.

To ensure that the profit is as high as possible, certain records have to be kept, and these have to be analysed on an annual basis. The question is what records to keep. The following is an example of an analysis that could possibly occur.


·         Numbering of cows:

You must be able to identify individual animals to be able to check on their production.

·         Total milk production:

This must be kept on a daily basis for each cow and the monthly total can be used for comparison.

·         Consumption of concentrates:

It has already been shown that consumption of concentrates accounts for one-third (1/3) of the money spent on feed.

·         Area of home-grown fodder:

This depends, of course, on the land available on the farm.

·         The amount of Purchased Fodder:

As this has to be debited against the income, the farmer must try to keep it as low as possible.

With these essential records, the farmer is now in a position to analyse the performance of the dairy herd, and work out the total production. Farm costs increase all the time and the farmer must compare one year with the next. Careful bookkeeping is necessary if the farmer wants to accurately assess his financial position from year to year.

We will now carefully examine an example and see what we can do with the numbers in the end.


Herd Size

  • Total number of cows milked in the year was 20. But remember not all cows are milked at the same time, some are dry.
  • Cows in milk at any one time during the year = 16.5

Milk output

  • Total annual yield – 72 952kg
    • Total sold – 71 500kg
    • Total income – $21 450

Value cents/kg          = $21 450/71500 = 30 cents/kg

Value of milk retained    = 72 952 – 71 500

= 1 452kg

Therefore       1 452 x 30 cents/kg

= $436

Total value of the product     = $21 450 + $436 =  $21886

Amount of concentrates used

Total consumed during the year     60 tons

Total Cost   = $8 000

Area of home-grown fodder

  • Grazing                                 40      ha
    • Total farm fodder           15        tons
    • Purchased fodder                       tons
    • Total cost to dairy                        $1

Labour used

Total number of hours spent by labourers in dairy during the year  = 1 825 hours

Having kept these simple records, we must now analyse the performance of the dairy and this is when we subject our example to careful analysis.

Margin over concentrate costs

Herd margin  = milk value – concentrate  cost

=  $21 886 – $8 000.

$13 886

Margin per cow = Herd margin/Total cows

= $13 886/20

= $694

Note: These figures are not constant for a farm and therefore are not included in the example in detail.

Milk yield per cow   = total yield

total cows

= 72 952/20

= 3647.6

= 3648 kg/cow

Proportion of cows in milk    = cows in milk/total cows x 100

= 16.5/20 x 100

= 82.5 %

The higher this figure, the more productive the dairy.

Milk price per kilogram = milk sold/kg sold  x 100

21 450/71 500 x 100

= 30 cents/kg

5 Amount of concentrates used

Cost per ton        = concentrate cost/tons used

= $8000/60

= $133.00 per ton.

Cost per kg of milk        = (concentrate cost x 100)/total milk produced

= (8000 x 100)/72 952

= 11 cents/kg

Amount of concentrate per cow     = total used/total cows

= 60/20

= 3 tons/cow

Concentrates used per kg milk = total used x 1000/total yield

=    60 x 1000/72 952

=    0.822 kg/kg milk.

Remember that this figure also includes consumption by dry cows.

1.  Land Use

Margin per Ha     = Milk value – concentrate cost/total land area

= $21 886  –   $8 000/15 ha

=    $926 per ha

Kg of milk per ha   = total yield/total area

= 72 952/15

± 4 800 kg/ha Area (ha) per cow = total area/total cows

= 15 ha/20 cows

= 0.75 ha/cow

  • Labour Use

Hours per cow       = total hours/total cows

= 1 825/20

= 91 hours/cow

Kg milk produced per hour   = total milk produced/total hours

= 72 952/1 825

±40 kg/hour

Margin per hour        = total milk value – concentrate cost/total hours

= 21 886 – 8000/1 825

= $7.61 per hour

The final analysis is the comparison of the above results with the results of the previous years. From the simple but reliable records kept, it can be seen how the herd performance can be analysed in detail. This is valuable information for the farmer who wants to know exactly how successful he has been in his dairy business.

The final list for comparison is as follows:

Final Interpretation:    2012 
Herd margin over concentrate13 886
Mean no. of cows in herd20
Margin over concentrate cost per cow694
Milk yield per cow3648
Proportion of herd in milk82.5 %
Milk price per kg30c/kg
Concentrates cost per ton    $133 cost per kg  13.3c/kg
ton per cow3 t
kg/kg of milk0.822
Land use Margin per ha  926 kg milk per ha4 800
ha per cow-fodder0.75
ha per cow-grazing2
Labour use Hours per cow 91 kg per hour  40
Margin over concentrate cost per hour  $7.61 

Now you can see from a simple list of results how the dairy farmer can make comparisons over a series of years. You can easily pick up problem areas which require special attention with this method.

One cannot stress too strongly the importance of keeping records. The value of these can only be realised after they have been kept and analysed.

Figure 1: Internal transfers and sales of products