Labor is a critical component on all dairy farms. Not only are reliable employees in short supply, but their wages also require a significant portion of the milk check. The larger the dairy, the less hired labor weighs on the milk check as a percentage of the operating cost of production.
The opportunity cost of unpaid labor is also highly significant on small dairies. Unpaid labor drops drastically up to 500 cows and continues to diminish with size, although at a more moderate pace.
The table shows the operating cost of production and hired labor, and the opportunity cost of unpaid labor, both in absolute terms and as a percentage of the operating cost of production. It’s based on information compiled by the USDA Economic Research Service during 2020 for different sized dairies.
The cost of hired labor climbs with herd size from a low of 53 cents per hundred pounds of milk in herds with less than 50 cows to $2.75 in the 1,000-to-2,000-cow category. As a percentage of the operating cost, it also grows gradually from 3% of the operating costs on the 50-cow dairy, up to 18% in dairies between 1,000 and 2,000 cows, only to drop again on dairies larger than that.
It is interesting to note that the largest increase in hired labor, as a per centage of the operating costs, occurs between 100 and 200 cows. In this area it increases by 100%, from 5% to 10%. The explanation is that when smaller dairies incorporate employees, they do so out of borderline needs that are likely still not reflected in a more efficient use of labor.
Continue reading this article published in Hoard’s Dairyman.
