While the former may be an integral part of, and absolutely essential to the latter, the two operations are not synonymous – they are in fact two distinct entities.
Perhaps I can illustrate the difference by using a similar scenario.
I get a bit disgruntled by paying high prices at the supermarket for vegetables so decide to dig up the back lawn, create a vegetable garden and grow my own.
After a year’s operation I decide to do an economic analysis to ascertain whether DIY has been a cheaper alternative. I add up the cost of the seeds and plants I have bought, and add in the cost of fertilisers, and chemicals for weed and pest control I have used. If I had to buy garden tools specifically for use in my vege garden, I capitalise their value and charge interest and depreciation against them. If I also use any of these for alternative operations such as working in a flower garden or other activities around the property I apportion the costs to my vege garden on a pro-rata basis. If I had been rash enough to buy a rotary hoe to help me, I would have to charge out interest on its cost, any repairs and maintenance, operating costs (petrol, oil) and depreciation. As an aside – the contribution of these rotary hoe costs would be extremely likely to render the whole operation hopelessly uneconomic.
I don’t apportion any labour costs for the time I spend in the garden because if I wasn’t doing that I would probably be watching TV, reading a good book or some other non-productive leisure activity, so the opportunity cost of my gardening activity is zero. If, however, I pay my kids pocket money to do a bit of weeding, cultivation, or whatever, that cost must be included. What I don’t include are repairs and maintenance on the house, rates and electricity, cost of mowing the lawns and so on. These are costs incurred by me in owning and operating my property, but they have absolutely no bearing on the cost of me growing my vegetables, even though it is my property they are being grown on.
Now draw the parallel with the farming operation. Certainly owning and operating a farm will involve considerable cost, and Tony Waugh’s article mentions many of them, such as rates, insurance, depreciation and repairs and maintenance on buildings and structures, administration etc.
However, these are all farm costs – they are nothing to do with the cost of growing grass. They will be still be incurred if the farm switches instead to growing maize, or cabbages or marijuana, or nothing. The only costs that can be set against the basic operation of growing grass are those directly involved – in economist terms, the direct costs.
Over a fair proportion of New Zealand this will not be tremendously high. Probably the most significant will be fertiliser – that is maintenance fertiliser only, but including nitrogenous fertiliser. Weed and pest control costs will be incurred to a greater or lesser extent, and where it is practised, irrigation will certainly be a major item and will be most likely to push the costs significantly above the 5c I promulgated.
Drainage costs will apply in some circumstances, as will the costs of any topping done. Pasture renovation or renewal cost could be high if done on a regular basis, but for the average farm this is most likely to consist only of the odd bit of oversowing, which will not amount to much of a cost.
Having now identified these costs specific to the growing of pasture drymatter, we can go to the annual report from last year for the Stratford Demonstration Farm, where both physical and financial data is recorded, and calculate the cost of pasture drymatter production on this farm – which would be fairly representative of a good proportion of NZ dairy farms.
In 2014-15 the farm grew 15,189kg DM/ha. The costs per ha to produce this were;
Fertiliser $648
Weed and pests $25
Machinery $20
Fence maintenance $26
Drainage and irrigation $0
Renovation-renewal $0
The machinery costs are only an estimate and are generous as they involve only a bit of topping. It is debateable whether fencing costs are really a part of growing grass but I have included them anyway to avoid any accusations of minimisation.
If we divide the cost per ha of 71,900 cents by the 15,169kg DM produced per ha we get a figure of 4.7c/kg DM.
Furthermore, if we consider fences are not an essential requirement for the production of pasture DM, and it can also be satisfactorily achieved without the necessity of topping, the total cost in would drop to $673 equating to 4.4c/kg DM.
I rest my case.
