Economics of Intensive Grazing in Dairy Production In the Mid-Atlantic

Dairy production in the US has experienced a marked increase in the size of dairy operations over time. Even as total production has grown over time, smaller operations have been disappearing. Consequently, the viability of smaller dairy farms has become an important policy concern in regions like the Mid-Atlantic where small dairy farms account for a significant share of farm enterprises. Previous studies suggest that dairy farming based on intensive (rotational) grazing, as opposed to traditional confined-feeding operations, may make it possible for smaller operations to remain economically viable. However, the short term nature of the data used in these studies limits the robustness of these findings. We utilize a unique panel of financial data collected during a 15-year-long extension program in Maryland, which allows us to investigate relative performances of intensive grazing operations with more robustness and more in depth than previous studies. We compare technical efficiency, profitability, and risk in intensive grazing and confinement dairy operations. Using year-by-year data envelopment analysis, we assess returns to scale and compare intensive grazing and confinement systems in terms of technical efficiency. A test of returns to scale suggested by Simar and Wilson (2002) shows that constant returns to scale cannot be rejected, indicating that smaller farms are not necessarily at disadvantage at least in the observed range of operation scale in our data. A comparison of technical efficiency using non-parametric tests and regression indicates that grazers are as technically efficient as conventional confinement operators. A test of second order stochastic dominance suggested by Barrett and Donald (2003) shows that profitability is less risky in intensive grazing than in confinement operations. Overall, these results indicate that intensive (rotational) grazing is a promising approach for improving both the economic and environmental sustainability of dairy farming in regions like the Mid-Atlantic where the climate allows a relatively lengthy grazing season.