A number of New Zealand dairy companies have proposed a differential pricing scheme that would discount the price paid for "peak milk" and provide a premium for milk supplied "off peak". A linear programming model was developed to analyse the on-farm impact of a differential milk pricing scheme. The differential pricing scheme used in the study was based on a dairy company where farmers supplied 30% of total milk during the October/November peak and 70% during the off-peak period (peak-to-shoulder ratio of 30:70). The impact of three price differentials of $0.82/kg MS, $1.63/kg MS and $2.45/kg MS between peak and off-peak milk was analysed. The results showed that if the case study farmer made no management changes to his system, there would be little change in the farm gross margin per hectare under a differential pricing scheme, provided the farm had a peak-to-shoulder ratio close to that used by the dairy company to set the price differential. However, returns declined by $182/ha, if the farm peak-to-shoulder ratio was 40:60 and increased by $185/ha if the ratio was 20:80. A price differential of at least $1.71/kg milksolids ($3.00/kg MF) between peak and shoulder milk, was required to reduce peak milk production significantly. As the price differential increased, the LP model selected solutions that reduced both total milk production and the ratio of peak-to-shoulder milk. Management changes selected to modify the pattern of milk production included; a reduction in stocking rate, a shift to an earlier calving date (and then a split calving), an increased lactation length, higher cow condition at calving and greater use of supplements.

DI, Gray, PA Yuretich, and GA Lynch

Proceedings of the New Zealand Society of Animal Production, Volume 54, , 383-388, 1994
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