Letter from Europe: Small is still beautiful for some family dairy farms

Monday, May 4, 2009

In Alpine areas, milking herds remain small and still offer a good living for farming families

by NORMAN DUNN

The end of political control for on-farm milk production in Europe looms ahead with the so-called quota regulation planned to stop in 2015. The response of farmers from Sweden to Spain is already clear: "If there's no control, let's expand."

This strategy for reducing production costs has already brought farm milk prices crashing down throughout the European Union (EU). But the accepted wisdom still seems to be: Expand for survival and, if you can't grow, get out.

Where costs are kept in strict control, this policy has worked so far. For instance, in Britain there's been steady dairy herd expansion for decades with an average size now of 112 cows, despite some of the lowest milk prices per litre in the whole of Europe. In January this year, these averaged the equivalent of 48.7 Canadian cents per litre.

While this low reward for the hard work of milk production has encouraged 13,000 British dairy farmers to quit the business since 1999, just as many have invested in expansion and bought more quota to make up the shortfall. And that's the way it's going in most of Europe's main milk production countries, particularly in France, Italy, Denmark, the Netherlands and eastern Germany.

Yet despite this trend of continual herd expansion, the average milking herd size in the main western EU countries is only 45 cows. The reason is a unique culture of small-scale dairy farming surviving in the Alpine areas and their surrounding regions. For instance, Austria has an average dairy herd size of just 10 cows. And a recent survey by Germany's farming paper, Top Agrar, shows that in southern Bavaria there's a large area with some 15,000 dairy farms where only 10 per cent milk 50 or more cows and 60 per cent have fewer than 30 in the herd. What's so interesting about this small herd structure is that fewer farms are giving up in such areas than in the traditional "large herd regions" further north. The annual drop-out rate is two to three per cent compared with five per cent.

So what's the secret that's keeping these compact family units not only going, but going strong?

First of all, there's hardly a farm which doesn't have additional income sources on top of the monthly milk check. Many have forestry enterprises on the higher slopes. Catering for the tourist and skiing sector is also big business and a lot of farmers carry out contracting work at hay and harvest time.

Secondly, using family labour only and what appears to be an inborn trait for breeding great cows and getting a lot of milk out of them means these small farms are surprisingly successful. Official financial results from 2008 show margins of C$1,300-$1,500 per lactation after variable costs, with the top 25 per cent of herds clearing around $1,900 per cow.

And finally, this sort of success is also a catalyst that is acting against individual farm expansion. Why give up milk production when there's a decent income to be earned from just a few cows? When no one opts out, this means land for expansion is very scarce and extremely expensive. Last year's bare farmland price south of Munich topped the equivalent of C$17,300 per acre.

General stagnation in herd size doesn't mean that there's no movement for more efficiency in other ways. For instance, even on farms with herds of 30 cows, there's no shortage of new barns going up. Cows are being moved out of traditional byres and into airy free stall housing with new herringbone parlours. Cost-cutting strategies include getting the maximum out of the few available acres by putting all replacement stock onto other farms for contract rearing. When new buildings do go up, then it's almost always with family labour. Investment in tractors and fieldmachinery is also minimized by hiring outside contractors for silage making, seeding and harvest.

But it's human nature to want to earn more, and southern Bavarian milk producers are no exception to other farmers in this respect. Especially where there's a younger generation taking up the reins, long-term planning definitely involves adding a few more cows to the herd when possible.

Still, the current contentment of making a living from a small farming base is easy to see everywhere in the region. In southern Bavaria, no one's dreaming of 1,000-cow herds. But many think that milking 60 might be something to look forward to. BF