Economics of automatic milking

In the end of November I was invited by DeLaval (Tumba, Sweden) to give a webinar (seminar which was broadcasted over their internal network so that employees from over the world could join) on two topics. The first topic was economics of production diseases and the second topic was on economics of automatic milking. The first presentation was quite similar to the presentation I gave at the World Buiatrics Conference in Lisbon, Portugal (slides can be found here). But the second presentation (slides can be found here) had quite some new research results which I will talk a bit further about in this blog.

I felt in the lion's den because I have been talking and publishing about the economic effects of automatic milking which are not always positive. As you know, automatic milking has become mainstream nowadays. Since the time of the first serious publications on automatic milking the economics of automatic milking has been of interest. These first publications were in the book called: Prospects for Automatic Milking: proceedings of the International Symposium on Prospects for Automatic Milking, a symposium organized by the old IMAG institute. At that time I was working on my PhD and gave a presentation of my own work (on automated diagnosis of mastitis problem, using artificial intelligence), but at that time I was quite skeptical about the prospects of automatic milking: would it really work? Those first robots did not look as elegant as they are now, and the performance was still far from perfect. Obviously I was wrong.

The economic question has since then not let me loose. A series of scientific publications has been made throughout the years, both for European as well as US circumstances. Most of these publications are so-called normative studies. They use estimations of costs of the milking robot, labour savings, production changes and compare this with an equal farm with a conventional milking parlour. These studies give great indications, but they are always theoretical. In 2007 we published a first studie (carried out by Ronald Bijl as an MSc thesis) on the economics of automatic milking based on real economic data, from an accountancy firm called Alfa Accountants en Adviseurs. In total, 62 farms (31 using an AMS and 31 using a CMS) were analyzed for the year 2003, using a case control study. Differences between years 2002 and 2003 also were analyzed, by comparing a sub-group of 16 farms with an AMS and 16 farms with a CMS. Matching was based on the time of investment in a milking system (same year), the total milk production per year, and intensity (kg/ha). Results of 2003 showed that the farms with an AMS used on average 29% less labor than farms with a CMS. In contrast, farms using a CMS grew faster (37,132 kg of milk quota and 5 dairy cows) than farms with an AMS (-3,756 kg of milk quota and 0.5 dairy cows) between 2002 and 2003. Dairy farms were compared financially based on the amount of money that was available for rent, depreciation, interest, labor and profit (RDILP). The CMS farms had more money available for RDILP (€ 15,566) than AMS farms. This difference was caused by larger fixed costs (excluding labor) for the AMS farms, larger contractor costs of € 6,422, and larger costs for gas, water and electricity of € 1,549. Depreciation and interest costs for automatic milking were not available,but were calculated based on several assumptions. Assuming larger purchase costs and a shorter depreciation time for AMS than for CMS, costs for depreciation and interest are larger for AMS farms than for CMS farms. So from that first study we concluded that automatic milking was more expensive than conventional milking. Which means that, automatic milking can be seen as a luxury good.

Very recently, another study was published. Wilma Steeneveld received a grant from WASS (the Wageningen Social Sciences Graduate School) and was able to visit prof. Loren Tauer from Cornell University to co-operate on the application of a relatively new method: Efficiency analysis, based on data envelopment analysis (DEA). With this method, you do not study the net income (or something like that), but the efficiency of a farm. The advantage is that not all inputs need to be translated into money, which is sometimes very difficult for inputs such as family labour and land. Data envelopment analysis compares the levels of inputs and outputs for a given farm against all other farms in the daaset to dermine the relative efficiency of farms. The efficiency of farms is related to the farm that was the most efficient. Data from another accountancy firm, Accon-AVM were used.

There were 63 farms in the data set with an automatic milking system and 337 farms with a conventional milking system, who did not differ from eachother in general farm characteristics. Farms with an automatic milking system had significantly higher capital costs (€12.71 per 100 kg of milk) than farms with a conventional milking system  (€10.10 per 100 kg of milk). Although the  farms with an AMS had a slightly lower technical efficiency (0.76) than the farms with a conventional milking system, this difference was not significant. This indicates that the farms were not different in their ability to use inputs (capital, labor, cows, and land) to produce outputs (total farm revenues).

This means that the economic performance of farms with an automatic milking system are almost equal to the farms with a conventional milking system. Good news for DeLaval, Lely and other manufacturers of automatic milking systems.