Financial benchmarking on dairy farms: Exploring the relationship between frequency of use and farm performance

The importance of financial benchmarking has increased in recent years as European Union milk quota abolition has facilitated rapid change in the dairy sector. This study evaluates the association between usage frequency of a financial benchmarking tool [Profit Monitor (PM)] and farm changes on spring-calving pasture-based dairy farms. To this end, physical and financial data for 5,945 dairy farms, representing 20,132 farm years, for the years 2010 to 2018 were used. Farms were categorized by frequency of annual financial benchmarking over the 9-yr period into frequent PM users (7-9 yr), infrequent PM users (4-6 yr), low PM users (1-3 yr), and nonusers. We use a mixed model framework and econometric models to characterize farms and to explore characteristics and determinants of economic performance and user groups. The most frequent users of the financial benchmarking tool had the greatest increase in intensification (measured by change in farm stocking rate), productivity (measured by change in milk production per hectare), and financial performance (measured by change in farm gross output and net profit per hectare) across the study period. Infrequent and low PM users of the benchmarking tool were intermediate for all variables measured, whereas nonusers had the least change. Empirical results indicated that economic performance was positively associated with dairy specialization and pasture utilization for all groups. Despite considerable fluctuations over the observation period, the overall change in total farm net profit between 2010 and 2018 was greatest for the frequent PM users (an increase of 70%, or €37,639), followed by farms in the infrequent PM user category (a 71% increase corresponding to an increase of €28,008 in net profit); meanwhile, low PM user and nonuser categories showed increases of 69% (€26,270) and 42% (€10,977), respectively. The results of this study also clearly indicated the existence of a strong positive association between frequency of financial benchmarking and greater technical and financial efficiency. The econometric analysis revealed that financial benchmarking users are more likely than nonusers to have larger herds, and that regional differences exist in usage rates. Finally, the study concludes by suggesting that the development of simplified financial benchmarking technologies and their support are required to increase benchmarking frequency, which may also help to facilitate a more sustainable and resource efficient dairy industry.