DAIRY FARMING PROFITS - ROOM FOR IMPROVEMENT
Although dairy farming is already one of the largest overall contributors to the New Zealand economy, there is actually a surprisingly large amount of room for improvement.
The chart above shows the variation in profitability after controlling for annual fluctuations as well as potential structural drivers of profit such as differences in land value and capital. The result is a measure of the variation in profit due to the two 'people' factors of production: management and labour ability.
This analysis shows that:
1. There is currently huge variation in profitability between New Zealand's best and worst performing dairy farms.
2. Most of the variation in profitability is caused by differences in the management capability of the people running our dairy farms.
The spread of the distribution in profitability means that even a small shift of the lower performing farms towards best practice would have a significant financial impact. This presents a significant opportunity for the industry, and for the country, to improve performance by increasing dairy farm management capability through training.