Influence of milk yield on profitability—A quantile regression analysis

Abstract

This paper analyzes the factors that influence the economic success of Swiss dairy farms, as measured by the annual income per family work unit, using panel data regression techniques. Based on more than 5,400 farm-year observations, the main focus of the analysis concerns the milk yield per cow and year as the key explanatory variable, which can be adjusted by the farm manager in the medium term. We apply both a random effects model and a quantile regression based on deciles, which allows us to study the heterogeneity of the sample in greater detail. Consistent with the current literature, the random effects model shows the positive contribution of the milk yield, namely an additional 1,000 kg/cow results in an increase of CHF 2,660; that is, 6% of the annual income. The quantile regression reveals that the effect of the milk yield differs between deciles, with a high milk yield being most beneficial for the best-performing farms, accounting for up to CHF 7,210 per 1,000 kg (where CHF1 = €0.86 = $1.01). Our analysis further shows the influence of the milk yield on profitability to be highly heterogeneous among Swiss dairy farms, indicating business-specific extension services and not suggesting the requirement for an increased milk yield at each level of economic success.

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