# Comparing production metrics and financial efficiency in production-limited dairy herds

## TL;DR

This study examines how financial efficiency and milk production per cow relate in Canadian dairy herds under a quota system, finding that higher milk production doesn't guarantee better financial outcomes.

## Contribution

The study reveals that financial efficiency metrics like EBITDA/kg are not linked to milk production per cow in production-limited dairy systems.

## Key findings

- EBITDA per kilogram was not associated with milk production per cow (ECM) in the dataset.
- EBITDA/kg was linked to labor, purchased feed per kilogram of butterfat quota, and herd management factors like DIM and dry period length.
- Improving biological and operational efficiency can increase profit per kilogram of butterfat quota.

## Abstract

Summary: This retrospective observational study used annual farm financial and production records from 2017 to 2021 to examine the relationship between financial efficiency (earnings before interest, taxes, depreciation, and amortization [EBITDA] per kilogram) and production per cow across 42 Canadian herds. These herds operate under a supply-managed system where quotas are linked to butterfat. Veterinarians and nutritionists use production per cow to measure progress, similar to the global dairy community. However, Canadian lenders and accountants favor efficiency metrics per kilogram of butterfat quota as their primary indicators. The study found that EBITDA per kilogram was not associated with milk production per cow (energy-corrected milk [ECM]) within this dataset. However, EBITDA/kg was associated with other efficiency indicators, including labor, purchased feed per kilogram of butterfat quota, herd average days in milk (DIM), and the proportion of the herd dry between 45 and 75 days. Emphasizing both biological and financial efficiency enables production and financial advisors to collaboratively pursue shared outcomes for their dairy clients.

Summary: This retrospective observational study used annual farm financial and production records from 2017 to 2021 to examine the relationship between financial efficiency (earnings before interest, taxes, depreciation, and amortization [EBITDA] per kilogram) and production per cow across 42 Canadian herds. These herds operate under a supply-managed system where quotas are linked to butterfat. Veterinarians and nutritionists use production per cow to measure progress, similar to the global dairy community. However, Canadian lenders and accountants favor efficiency metrics per kilogram of butterfat quota as their primary indicators. The study found that EBITDA per kilogram was not associated with milk production per cow (energy-corrected milk [ECM]) within this dataset. However, EBITDA/kg was associated with other efficiency indicators, including labor, purchased feed per kilogram of butterfat quota, herd average days in milk (DIM), and the proportion of the herd dry between 45 and 75 days. Emphasizing both biological and financial efficiency enables production and financial advisors to collaboratively pursue shared outcomes for their dairy clients.

•Canadian dairy farms operate under a supply-management system based on butterfat.•Veterinarians and nutritionists use production per cow as their outcome target.•Canadian financial advisors use profit per kilogram of butterfat quota as their primary outcome.•Energy-corrected milk per cow was not associated with profit per kilogram of butterfat quota across herds.•Improving biological and operational efficiency increases profit per kilogram.

Canadian dairy farms operate under a supply-management system based on butterfat.

Veterinarians and nutritionists use production per cow as their outcome target.

Canadian financial advisors use profit per kilogram of butterfat quota as their primary outcome.

Energy-corrected milk per cow was not associated with profit per kilogram of butterfat quota across herds.

Improving biological and operational efficiency increases profit per kilogram.

This retrospective observational study examined the relationships between production metrics and financial efficiency on dairy farms operating within a production-limited system in Canada. In such a system, production quotas serve as the primary constraint on herd expansion. Canadian financial advisors, including accountants and lenders, predominantly use earnings before interest, taxes, depreciation, and amortization (EBITDA) as their key success metric at the herd level. For comparative purposes, they often use quota holdings measured in kilograms of butterfat rather than cow numbers as the denominator. Data were collected from 42 Canadian farms for the years 2017 through 2021. Financial statements were standardized and adjusted to account for unpaid labor and dividends. Multivariable linear regression was used to describe the relationship between 17 commonly used metrics—including those related to milk production, reproduction, transition, replacements, and turnover—and the annual EBITDA per kilogram of butterfat quota (EBITDA/kg). Milk production per cow (ECM; 39 ± 4 kg/d) was not significantly associated with EBITDA/kg (Can$1,851 ± Can$1,000; Can$1 = US$0.72). Four metrics exhibited significant associations with EBITDA/kg. Specifically, labor as a percentage of revenue, purchased feed/kg of butterfat quota, and DIM demonstrated negative associations, whereas the percentage of the herd dry between 45 and 75 d exhibited a positive association. Earnings before interest, taxes, depreciation, and amortization serves as an indicator of the efficiency with which raw materials are converted into profit. The findings suggest that higher production levels are unrelated to increased milk production efficiency within a production-limited system at the herd level. Certain management factors, such as purchased feed/kg and labor, may result in suboptimal resource use. Conversely, factors such as DIM and days dry may influence the cow's efficiency in converting feed into milk at both the cow and herd level. Although the lack of association between production and EBITDA may not apply to non-production-limited markets, expanding the focus beyond production metrics to include financial efficiency enables advisors in all markets to identify management practices that may impede optimal milk production. This research highlights the importance of collaboration between production and financial advisors. Comparing key efficiency indicators alongside EBITDA/kg will ensure that producers concentrate on areas with the greatest potential for financial improvement.