A theoretical study of the economic and environmental impacts of incorporating housing structures into a Canterbury dairy farm (LUDF)

Abstract

In parts of New Zealand, economic drivers are causing intensification of dairying in order to maintain a competitive advantage for low-cost milk production. These practices have contributed to increased nitrate leaching, which has resulted in a regulatory push to reduce these adverse environmental effects. A method of reducing this degradation of water quality is to remove cows from pasture during ‘at-risk’ periods, and move them into a housing structure, to capture their effluent for reapplication at a later date. This study examined both the environmental and economic impacts of incorporating a housing structure within the Lincoln University Dairy Farm (LUDF), by modelling proposed housing-incorporated systems and restricted grazing practices with both Overseer® 6 and ExcelTM. An investment analysis indicated the pre-tax and pre-financing real (constant value dollars) IRR (over a 12 year period) of the current system is 7.63%, the fully enclosed freestall system was 7.24% and the roofless version of this system was 7.82%. This resulted in an increase in marginal returns of 4.66% (housed) and 9.41% (roofless). This suggests that the proposed systems could maintain or increase relative profitability, while reducing the nitrate leaching levels by 38%. Contributing factors to increased profitability and relative increased milk production in the proposed systems are increased pasture production, extended lactation and increased supplementary feeding, as well as reductions in fertiliser application. Supplementary feed utilisation is also improved. A sensitivity analysis predicted that the proposed systems still remained viable with changing milk price, supplementary feed costs, total farm working expenses and machinery costs, although decreasing milk production significantly reduced profitability. A potential disadvantage of this practice is the capital cost of erecting such a structure. The fully enclosed structure cost $2,390,500, and the roofless structure cost $1,529,500. This resulted in a capital cost per kg of N leaching mitigated of $995 and $637 respectively, although this capital was compensated by increased income. Significant risks to the proposed systems include external price variance and a lack of previous adoption. It is concluded that a housing-incorporated system in Canterbury is economically and environmentally viable, although practical-based research is required to ensure feasibility.