Most of the management practices implemented on the farm are either to manage disease or increase milk production. The market is flooded with products that can help with both goals. Understanding the economics of management practice adoption can make it easier to make adoption decisions.
Determining Disease Costs
Disease costs can be calculated using the simple equation: C = L + E or Costs = Losses + Expenses. Expenses are more straightforward to configure because they include the costs we typically associate with treating the disease, like drugs or added labor. However, preventative expenses are often overlooked. For example, using a pre or post-dip should be considered when evaluating mastitis expenses. Losses can be more challenging to estimate because the costs are not direct. Losses may come in the form of lost milk yield, decreased fertility, or lost milk premiums.
If nothing is done to manage or prevent a disease, the total cost of the disease comes from losses alone. Once a management practice is added, the losses will decrease to a certain point, and expenses will increase. A technical optimum is reached when disease incidence drops to a point where the incidence rate can go no lower regardless of what management practice is added. In that case, expenses are the highest portion of the total disease cost. Often, the economic optimum, the point where we see no financial returns to lowering a disease incidence rate, comes well before the technical optimum.
Marginal Level Milk
The adoption of products or changing management practices to increase milk yield should be evaluated using marginal economics. This means the cost and benefit of increasing milk per pound. Like disease management, a point will come in which the benefit of increased milk yield will not cover the costs. All costs should be considered to make the marginal level milk yield as accurate as possible. For example, feed costs typically increase as milk yield increases, so when determining the potential benefit of adding a product to the farm, feed costs and the costs of the product need to be considered.
Before adopting a product or changing a management practice, try to consider the whole picture. Determine which direct and indirect benefits or drawbacks might occur from management adoption. Overestimating costs of management practices can help ensure that hidden costs may be accounted for.
Your Next Read: Is Beef Breeding Derailing the U.S. Dairy Industry?
