Short and medium-term impact of dairy barn investment on profitability and herd size in Switzerland

Abstract

Investing in larger barns and increasing herd size are crucial milestones in dairy production. Based on the Swiss Farm Accountancy Data Network and data on government-supported investments, we investigate the development of two key variables over the first eight years after investment: change in herd size and calculated profit, that is, farm income minus opportunity costs for family labour and capital. We apply a fixed-effects panel regression and test for autocorrelation present in the time series. Compared to the year before the investment, calculated profit decreases in the first three years, while in the remaining years no significant difference compared to the year before investment can be seen. Herd size increases slowly, predominantly in the second and third years after investment, to some extent explaining the less favourable development of profitability in these years. We conclude that investment in a dairy barn does not lead to improved profitability in the short and medium term, pointing to the question of whether this picture changes in the long term.<br />

Regional Diversity of Technical Efficiency in Agriculture as a Results of an Overinvestment: A Case Study from Poland

“…Improvements in the technical means of labour and the introduction of advanced machinery and equipment into agricultural production lead to increased productivity of both plant and animal production [38]. Modern agriculture requires the involvement of capital, but not all agricultural, high-risk investments have to bring profit in the short term [39], since they may be directed towards a long-term achievement of sustainability in all its dimensions (including social and environmental) [40]. In agriculture, it takes a certain amount of time before the contributed capital provides a return on investments or before the increased productivity results in efficiency [41].…”

Survival Analysis for the Adjustment Phase Following Investment in Swiss Dairy Sheds

“…Similar to Kramer et al (2019) [7], the analysis was based on two data sets. Firstly, we selected farms limited to the farm types "dairying" and "combined dairy/arable crops" from the Swiss Farm Accountancy Data Network (FADN) from 2003 to 2014 [11].…”

“…Because the actual number of dairy shed places created by the investment was not apparent from the data, the level of investment was used as a proxy in order to control for this. The observed slow increase in livestock numbers after the investments [5][6][7] is an indication that the increased dairy shed capacity initially remained unutilised [9]. Accordingly, it is expected that size (of an investment) has a negative impact on the adjustment phase.…”

“…In fact, there is evidence that investments in dairy sheds are not, at least immediately, an economic success. Several studies have shown that the cattle population only grows with some delay following investment in dairy sheds [5][6][7]. Sauer and Latacz-Lohmann (2015) [8] point to the fact that an investment is followed by a phase of efficiency improvement that lasts for two years.…”

“…Investments with a longer-lasting learning effect and a subsequent increase in efficiency are also known from the downstream agricultural sector [10]. Kramer et al (2019) [7] analysed the impact of a dairy shed investment on profitability focusing on imputed profit as an evaluation criterion. This paper goes one step further, analysing whether the imputed profit before an investment is reattained afterwards.…”