We were recently asked a series of questions by a financial institution who are interested in the work we do. They are especially interested in economic advantages for farmers working with Trace & Save. I thought it would be interesting to publish our responses on our blog.
The questions we were asked are:
- What benefits of increased revenue are there from farmers using our tool?
- What benefits of lower cost are there?
- Are there any benefits to improved asset or land value?
- Are there any benefits to improved market access?
Our response is below.
Farmers improve because they manage their farms better – the tools help them to do this
Before responding to the questions, what needs to be clarified is that farmers do not improve because they make use of the Trace & Save tools. Farmers improve because they manage their farms better – the tools help them to do this.
The tools which Trace & Save uses serves three main functions: 1) they provide an assessment of where the farmer is currently positioned with regards to the sustainability of their production system; 2) they assist in identifying the areas of opportunity for the farmer to improve, which leads to the development of a strategy for improved sustainability; 3) they allow the farmer to monitor their progress and/or regression over time, thereby creating a positive or negative feedback cycle with regards to the practices they are implementing.
There are farmers who have made use of these tools, and the consulting insight which accompanies them, to great success. But there are also farmers that have not adopted any of the recommended strategies, and therefore have not improved. In the end, the onus is completely on the farmer as to whether they make use of the tools or not.
Benefits of increase revenue from farmers using the tool
Land area is the main limiting factor for growth, from a revenue perspective, therefore the main direct benefit of more sustainable production is increased milk production per hectare (l/ha). This needs to be achieved while not increasing inputs/costs, which is addressed through the second question. The focus of sustainable production is increased long-term profitability, which incorporates the necessity for a reduced reliance on external inputs.
Benefit of lower cost
There are multiple benefits associated with reduced costs. These include reduced feed and fertiliser costs relative to production. There is a direct correlation between increased farm profitability and reduced farm environmental impact.
One of the major findings of research carried out by Galloway et al. (2018) was that for farms to become more profitable, and reduce their environmental impact (i.e. reduce carbon footprint and increase nutrient utilisation) they need to increase milk production per hectare, while reducing fertiliser use and increasing feed conversion efficiency. This research was done using data from the Trace & Save database. If farms can reduce their carbon footprint and increase their nutrient utilisation, they are becoming more profitable.
A mineral balance is a farm-gate assessment of nutrients imported versus removed, and a carbon footprint is an assessment of the amount of greenhouse gas emissions that have resulted from the production of milk. Although these two measures were developed s environmental impact indicators, we use them as economic efficiency indicators as well.
Three of the measures used by Trace & Save to discuss the influencing factors on the farm carbon footprint and mineral balance are: 1) kilograms of nitrogen fertiliser used to produce a ton of pasture dry matter (kg N/ton DM); 2) grams of concentrate (feed fed to cows in dairy parlour) per litre of milk produced (g/l); 3) milk production of a cow over the duration of a lactation per 100 kilograms of liveweight of the cow (l/100kg liveweight). An improvement of these three indicators is evidence of a farm which has significantly improved the efficiency, and therefore profitability of milk production.
The mineral balance can also be used to calculate an opportunity cost of excess/unutilised nutrients on a farm in a year. Any nutrients which are not utilised are wasted, and either result in pollution or build up in the soil, both of which have significant potential for negative environmental impacts. By subtracting the removed nutrients from the imported nutrients per hectare, an excess per hectare can be calculated, which can then be multiplied by the average cost of a nutrient, providing an opportunity cost. The most significant nutrient, both from a farm productivity and environmental impact perspective, is nitrogen, which is measured by nitrogen use efficiency (NUE). Nitrogen is valued at R11/kg.
Benefit of improved asset or land value
This is a very difficult question to address, because land value has increased drastically over the past seven years that Trace & Save has been in business. The main driver for this is lack of availability of good agricultural land. More specifically in the milk producing areas where we work, because the successful dairy farmers have become more efficient and therefore more profitable per hectare. The improvements in productivity discussed above therefore have a direct effect on how valuable the land is.
Another benefit of improvement to the land, although this does not have a direct financial value associated with it, yet, is improved soil health. A farm with healthy soils is a lot more productive, which means the land is a lot more valuable for agricultural production. Improvement in soil health is best represented by improvement in soil carbon levels.
Case Study: Farm examples
The examples below show the improvement in factors discussed above from when they started with Trace & Save, to their most recent sustainability assessment.
The five farms included below have all showed improvement in sustainability indicators over the years which they have worked with Trace & Save. As described in the document above, these indicators show both a reduction in environmental impact and increase in profitability. It should be noted that there have been significant droughts in the Eastern Cape since 2016, which has made it very challenging for farmers to fully implement the sustainable practices included in the strategies provided by Trace & Save.
It is important to include specific farm examples, rather than use any form of average, because there are so many nuances to each farm’s situation. The reality is that as much as there are farms who have improved, as below, there are also farms which have not. This can be associated both with environmental circumstances (drought) and bad management practices. Not all the farms below have shown perfect improvement, but the fact that we can measure and observe the trends over time provides a powerful tool to help farmers figure out how to adapt and improve towards more sustainable production.
Table 1: Changes in sustainability measures on farms working with Trace & Save
The five farms included each show a unique perspective on improvement, and some of the opportunities and challenges therein. Farm 1 was already on the relatively efficient side when we started working with them in 2013, which did not allow for as much room for improvement as on other farms. That said, they have shown significant improvement in terms of their milk production per hectare and milk production per liveweight, as well as their nitrogen fertiliser conversion.
Farms 2 and 3 have shown the greatest improvement over time, both having a huge reduction in carbon footprints, and increases in nitrogen use efficiency. This has been achieved through almost doubling their milk production per hectare, while improving the efficiency of production as shown by the other measures. An interesting note is that farm 3 has still not yet reduced their opportunity cost lost through excess nitrogen. Although the nitrogen use efficiency has improved on both farms, farm 2 has done it more effectively to scale.
Farm 4 is an example of a farm which has shown mixed results. There have been some improvements, but also some areas which have regressed. This farm is an example of one which has faced extreme drought, and yet still managed to stay productive by improving the efficiency of fertiliser use. What is interesting to note on this farm is that they have had to reduce their milk production per hectare, and increase their concentrates fed per litre, which are both directly linked to drought conditions.
Farm 5 is an example of a farm which showed big improvement in a small space of time. This farm was in the process of expanding their farm between 2014 and 2016 and managed to do it in a manner that improved the sustainability of production. Unfortunately we had to stop working with this farm in 2017.
Four out of the five farms were able to improve their soil carbon levels since they started working with Trace & Save. This is quite a remarkable achievement, when considering the drought conditions. That said, the improvement in soil carbon has greatly reduced the harshness of the drought, due to the improved water holding capacity associated with improved carbon levels in the soil. One of the most important and foundational aspects which has driven the improved sustainability on all five of these farms has been improved soil health, which is very simply represented by soil carbon here, but entails a lot more than just improved carbon. Through improved soil health, farmers can grow more, better quality food (e.g. grass) for their cows on the farm, at a lower cost (i.e. reduced fertiliser inputs). This further reduces the need for bought feed, which greatly reduces the cost of milk production.
Benefit of market access
This is also a challenging question to provide a very direct answer to. It is both yes and no. From what Trace & Save has observed, from direct interactions with some stakeholders in the secondary dairy market and some retailers, and then from indirect sources, there is not a huge willingness to pay for sustainable practices. There is a desire for farmers to, for example, reduce their carbon footprint, but it has not yet worked its way into the pricing structures of the product. Very recently there has been some conversation of placing an incentive on sustainable practices. What is more prevalent is that, for example, milk buyers will provide extension/consulting services (e.g. Trace & Save) and assistance with equipment to be more sustainable (e.g soil moisture probes). So they are willing to push resources towards sustainable practices, but it very seldom translates to a direct payment to farmers.
There is an obvious global trend towards a demand for more sustainable agricultural produce, and a strong trend towards alternative, non-dairy sources of milk – which are perceived to have a lower environmental impact than cow’s milk. There is not concrete evidence of this, but it is something that needs to be noted, and which the dairy industry needs to position itself to respond to.
Galloway C, Conradie B, Prozesky H & Esler K. 2018. Are private and social goals aligned in pasture-based dairy production? Journal of Cleaner Production, 175:402-408.