Management Strategies, Risk Considerations and Herd Size Analysis for Optimal Resource Allocation in Argentine Dairy Farms

After a rapid expansion of the Argentine dairy sector, lower producer prices are expected. As a means of preventing an excessive reduction in dairy farmers’ profitability, an analysis of current profitability and an evaluation of possible improved resource allocation are warranted. This study aims to: 1- establish an optimal plan for dairy farms located in the Santa Fe Sur region, and determine if and how it differs from the current plan; 2- determine if the current resource allocation is efficient in terms of the return-risk tradeoff; 3- evaluate ‘nearly optimal’ plans; and 4- determine the role of herd size in profitability improvement. The comparison of current practices on a representative dairy farm in the Santa Fe Sur region and the optimal solutions obtained for different scenarios with a linear programming model show that there is room for improvement in resource allocation. The model was modified, simulating several scenarios and including various sources of risk, to evaluate return-risk tradeoffs. When different choice models are applied to determine the best production plan, none of the seven optimal plans analyzed is the best one under all six choice models. The production plans that are the best ones under at least two different choice models are the plans for years 1996 and 1997, and the current plan is not the best under any choice model. The analysis of multiple goals, included through additional constraints or activities, to evaluate nearly optimal solutions indicates that the economic performance of these farms is higher when corn for grain is included in the crop sequence, heifers are first bred at fifteen months of age, and higher production levels are achieved, despite the higher total feeding expenses. The herd size analysis for years 1996 and 1997 suggests that there is room for growth, especially if heifers need not to be raised on the farm. Even if most of the potential profitability increase due to larger herds is lost when all replacements are raised on the farm, the herd can still be enlarged by thirty-forty percent. However, larger herds do not necessarily lead to higher profitability

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Working or Discussion Paper
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Series Statement:
RB 99-9

 Record created 2017-04-01, last modified 2017-08-26

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