Can Big Be Beautiful? Large-scale Livestock Units

Sustainability, or the 'capacity to endure' has three principal pillars: economic, environmental and social, according to Farmerslivery.
calendar icon 4 December 2012
clock icon 15 minute read

Whilst all are essential to support the long-term survival of a business, or indeed an industry, it is economic competitiveness that underpins the short term viability of any commercial entity, particularly one engaged in the production of relatively low-value, low-margin commodities such as milk.

To paraphrase the economist, John Maynard Keynes, "In the long run we're all dead", so it is therefore critical that any business maintains economic viability if it is to survive in the short-term, but without compromising its broader environmental or social obligations.

In most industries, the evolution of new technologies and management practices supports increases in the optimum scale and intensity of production due to progressively more realisable economies of scale, which risks rendering more 'traditional' scale businesses less competitive over time.

Consequently, what was an efficient, sustainable farm yesterday may not be so tomorrow, particularly when one factors in the move towards ever-greater market deregulation. However with increasing scale and intensification come new and ever greater risks that must be effectively managed if that business is to be genuinely sustainable going forward.

The UK boasts a broader spectrum of livestock production systems than many other countries and this is particularly evident within the dairy sector. Our benign, maritime climate favours grass production, particularly in the west of the country, where the majority of the UK dairy herd can be found, and as such the industry has evolved to exploit this valuable and relatively low cost resource.

However a significant and historically high value, liquid milk market has created demand for year-round supply of milk that, in turn, has supported the development of more intensive systems of production than are typically found in other grass-based, but predominantly export-focused milk producing countries such as New Zealand and Ireland.

A recent analysis of the profitability of dairy farming in the UK, conducted by DairyCo, concluded that efficient milk production was possible under any of the major systems of production practiced in the UK and at pretty much any scale. This was cited by those opposed to the development of large-scale intensive dairies as evidence that they were no more efficient than any other system of milk production and thus the greater environmental and social risks associated with them rendered them fundamentally unsustainable.

However closer analysis of the supporting data revealed that more specialised systems of production - i.e. low input grass-based and high-yielding intensive systems - were on average significantly more profitable than the more traditional 'composite' system of production.

The relationship between scale and profitability is more difficult to establish from the report, but this could be explained by the fact that the optimum scale of production varies according to the system employed, which was not explicit in the DairyCo analysis.

Intensive, predominantly housed systems only really begin to realise economies of scale at around the same point that low-input grass based systems, for reasons of logistics, tend to start encountering diseconomies of scale - i.e. around 500- 700 cows.

Data from the US, whose dairy industry is predominantly based around an intensive, year-round housed model, shows significant reductions in the longrun cost of production as herd size increases. USDA figures show herds with over 1,000 cows have typically 30-35 per cent lower operating costs than herds of 100- 199 cows.

Given that there was no data in the DairyCo sample from any of the albeit small number of genuinely large (1,000+ cow) herds currently operating in the UK, one can understand why the report failed to recognize any significant relationship between scale and cost of production.

However, whilst the optimum scale for either system is significantly larger than the current UK average herd size of 140 cows, it would appear that, where the evidence exists, there is a very strong link between reducing cost of production and increasing herd size for intensive housed dairy systems.

Risk Management

An oft-quoted weakness of larger, more intensive dairy systems is their perceived vulnerability to movements in both milk price and the cost of feed, as these businesses tend to buy in a far greater proportion of their feed than smaller grass-based dairy farms. However in markets where large scale intensive systems have evolved over time, mechanisms that allow farmers to manage commodity risk have evolved in parallel, allowing dairy (and indeed pig, poultry and beef) producers to hedge their exposure to both input and output prices, thus limiting their vulnerability to market volatility.

The effectiveness of this approach can be seen by the response of the US dairy industry to a 60 per cent drop in the milk price between 2008 and 2009. The steady growth in US milk output of the previous five years effectively stopped during that period as producers reduced the amount they fed due to the lower marginal value of milk and increased culling rates to remove less efficient cows from their herds. However as the price recovered, the growth in milk output quickly resumed, suggesting that as a consequence of effective risk management, the US dairy industry is far more resilient to external price shocks than some critics suggest.

Whilst the evidence used to support the assertion that intensive, housed dairies are indeed economically sustainable at larger scale, is based on data from the US, there is no obvious reason to assume that the same principles would not apply to large-scale housed systems in the UK, provided the supporting risk management infrastructure can be developed. Whilst such structures are currently in their infancy in Europe, the increasingly global nature of commodity markets and improved access to risk management instruments and services in other agricultural sectors would suggest that there is little if any reason why this could not be replicated in the dairy sector.

Environmental Sustainability

From an Environmental Sustainability perspective, there are as many arguments to support the case for intensification as there are to undermine it.

Opponents of large scale intensive systems tend to quote absolute quantities of resources used and waste, greenhouse gases (GHGs) and pollutants generated by large-scale production units, (often referred to as CAFOs or Confined Animal Feeding Operations), and the attendant environmental risks they pose, whereas those in the pro-intensification camp argue that on a per unit of output basis, more intensive systems use fewer resources and produce less waste and lower GHG emissions.

Specific evidence based on UK data is difficult to come by, whereas the US industry is again better resourced in this regard. A paper by Capper et al. published in Journal of Animal Science in 2009 looked at the total resource requirement of the US dairy industry to produce !billion litres of milk in 2007 (intensive feedlot-based industry) compared to 1944 (extensive pasture-based industry)

The results showed that the industry in 2007 required significantly less land, animals, feed, water and energy and generated significantly less manure and GHGs to produce the same volume of milk than was the case in 1944. Consequently the carbon footprint of a litre of milk produced in the US in 2007 was estimated to be 37 per cent of that generated in 1944.

Many of these gains can be attributed to improved genetic potential of both feed and forage crops and the dairy herd itself, but the realisation of that potential is only possible with the use of modern management practices.

This is reflected in carbon footprint figures for UK milk producers where, subject to variations in methodology, larger more intensive dairies tend to operate at significantly lower carbon footprint figures per litre of milk {<l,000 C02 equivalents per litre) than the UK industry average of around l,300 C02 equivalents per litre, which is, in turn, significantly lower than the global average of 2,400 C02 equivalents per litre.

On this basis at a system level, intensification of production would appear to offer some clear advantages in terms of resource requirement and thus long term sustainability, however this does not take into account environmental risks at the individual farm level.

The argument against large-scale intensive livestock units invariably centres around the perceived threat posed to groundwater and the wider environment by the large quantities of manure generated, stored and spread by these farms. However, where cited, evidence of breaches of environmental regulations are more often than not from older facilities that were designed and built to far less stringent standards than are required in the US today, and certainly would be required in the EU, both in the planning and permitting process and during the operational life of the facility.

All dairy farms in the UK are required by law to have sufficient manure storage and land under their control to spread manure over, to comply with current NVZ regulations, so pro-rata a larger farm represents no more risk to the environment in this regard than a smaller farm. Furthermore, smaller farms are in reality more likely to be subjected to a lower level of scrutiny than larger farms, simply due to the lower level of ultimate hazard they pose and the resource constraints of the relevant regulators and monitoring agencies.

It is our consider ed opinion that whilst the risks of environmental pollution from large scale intensive livestock farms should not be underestimated, many of those risks can often be more cost effectively managed and mitigated at scale due to the businesses ability to spread the cost of environmental compliance systems and infrastructure over a larger number of litres of milk or kilograms of meat sold.

Often the most effective mitigation technologies, such as anaerobic digestion and formal environmental management systems, e.g. ISO 14001, have a minimum efficient scale of operation that can put them beyond the reach of smaller producers. However, the approach that the industry takes to mitigating and managing environmental risk needs to be more clearly and proactively communicated to relevant stakeholders and regulatory authorities, to enable a more robust and objective environmental assessment and risk evaluation framework to be developed for large livestock units.

A Return to Mixed Farming

Due to the nature of their fe ed requirements, there is a compelling case for locating large-scale dairies in arable areas of the UK, as was proposed by Nocton Dairies. This would not only better exploit closer proximity to sources of valuable but bulky food industry by-products, but also provide access to large areas of arable land required for cost effective production of high-quality, high dry-matter forages such as maize and alfalfa (lucerne), which in turn would benefit from the nutrients in the manure.

This also potentially reduces the environmental risk posed by manure as arable areas, by definition tend to have a much lower existing livestock density than traditional dairying areas, allowing manure nutrients to be more optimally utilized according to crop needs across a larger land area. The potential economic and environmental benefits of this are discussed in more detail in the main body of the report, but the reintroduction of ruminant livestock into arable areas could potentially help recreate a more environmentally sustainable mixed farming model in the east of the UK whilst at the same time reducing pollution pressure on water resources in the west.

Animal Welfare

The social sustainability of increasing scale in intensive livestock production is perhaps the most contentious and difficult to address due to the deep-seated emotional and ideological drivers of stakeholder attitudes towards both animal welfare and perceived threats to the individual's quality of life.

As with the environmental risks, the risks to animal welfare posed by large-scale intensive livestock systems are often based on hypothetical risk factors drawn from observed industry trends, and simply scaled up rather than based on specific evidence.

Whilst established expert reports into dairy cow health and welfare such as the EFSA Report in Europe and the FAWC Report in the UK, highlight the increased potential risk associated with increasing scale and intensification, they both stop well short of implying any direct correlation between either and compromised welfare. Indeed both state quite overtly that large scale intensive systems, managed appropriately, are more than capable of providing the requisite levels of animal health and welfare.

Animal health and welfare and animal performance are strongly correlated. Successful livestock farmers understand this and it is often the provision of higher standards of both that contribute to higher profits that in turn enable some producers to expand their operations, whereas the opposite is often one of the underlying causes of higher costs of production and lower profitability on less successful farms that do not grow.

What data does exist for intensive milk production would tend to suggest that health and welfare is at worst 'scale-neutral' and that the evidence would indicate a trend towards higher standards of health and welfare on many larger farms due to a generally higher standard of management employed and increased investment in specialist staff, facilities and operating procedures designed to deliver optimum health and welfare.

However the industry has again singularly failed to communicate this effectively and in so doing has left the door open to criticism of its practices by individuals and organisations that are fundamentally opposed to large-scale intensive production systems. This is an area that requires considerably more work on the part of the industry if it is to stand any chance of gaining consumer confidence and acceptability of such systems in the face of sustained campaigning by welfare pressure groups.

One welfare area that undoubtedly needs further research is the 'Fourth Freedom' or the ability of animals reared and managed under intensive production methods to exhibit 'natural behaviour'. Of all the welfare parameters defined by the 'Five Freedoms', this is the one most open to interpretation and ambiguity and therefore the one on which opponents of large-scale intensive livestock farming are increasingly focusing their attention.

Understanding animal behaviour and the relationship between environmental stress factors and wider animal health and productivity is increasingly acknowledged as a critical driver in providing an optimum environment for livestock to sustainably express their genetic potential. The development of a robust evidence base around this will be fundamental to the future development of sustainable livestock production systems whether intensive or extensive.

Wider Social Impacts

Stakeholder concerns over the wider social impacts of large-scale intensive livestock farming are potentially harder to objectify as they have to address deep seated fears around impacts on public health, compromised quality of life and a changing way of life.

Modern technology, best practice and established regulatory frameworks have been shown capable of successfully mitigating the underlying causes of the vast majority of stakeholder concerns, however the perception of risk is often every bit as important as the reality and must be managed accordingly. There also has to be confidence among stakeholders that commitments to mitigate impacts will be delivered upon.

From a neutral perspective it is easy to see how such concerns, particularly from those who are, or who feel they might be, directly affected by the development of a 'mega dairy' or 'pig factory' in their immediate vicinity, evoke a disproportionate response, particularly if fuelled by inaccurate and inflammatory media reporting and pressure group activity.

'Nimbyism' {'Not In My Back Yard') is not unique to the livestock industry and is an increasingly significant hurdle to business development and expansion across the wider economy. The solution is often sustained and effective communication, along with engagement, flexibility and compromise. Proactive management of key stakeholder relationships is as fundamentally important as the physical measures taken to manage the more tangible risks and impacts associated with any new or expanding business.

The UK livestock industry needs to rapidly establish greater competencies in this area as it is currently lagging behind other industries, and critically the NGO community, in the way it manages stakeholder relationships and communicates with consumers.

One other key social impact of large scale farming is the perception it drives traditional 'family farms' out of business. There are two hypotheses supporting this: one that economies of scale create a lower average cost of production and thus a lower average milk price at which smaller producers cannot survive; the other is that it is more cost-effective for purchasers to work with and collect milk from larger farms, and therefore more lucrative or beneficial contracts are awarded to these and smaller producers are left with less advantageous contracts.

However, to counter this, none of the farmers planning to exit dairy farming in Britain over the next two years cite competition from large farms as a reason, according to the DairyCo annual Intentions Survey. Indeed, it appears farmers are making the decision to exit for other reasons, leaving a vacancy of milk production picked up by those who see an opportunity to expand.

The reality is there could be an element of both 'push' and 'pull' behind the trend for expansion of herd size, and this area merits further study. However, it is a concern that imposing arbitrary limits on maximum size of farm or herd, while little evidence-based justification for such limits exists, will only undermine the longer-term competitiveness of the UK industry; and for the incumbents, who have often invested many years if not generations-worth of time and capital in building sustainable and competitive businesses, such restrictions could be considered restraint of trade.

Conclusions

For centuries, agriculture has followed a path of continued intensification and increasing scale, by exploiting advances in technology and management practice, that in turn has sustained an ever-growing world population, whilst at the same time, freeing up that most valuable of resources, human capital, for other endeavours that have shaped the world we live in today.

That process is evolutionary and unrelenting, and provided that the methods employed do not unduly compromise standards of animal welfare, environmental impact and quality of life, then there is little if any objective evidence to suggest why it should not be allowed to continue. The rate and extent of that evolution and the inevitable reduction in producer numbers that are a consequence of it, will ultimately be dictated by resource availability and the price consumers are prepared to pay for the end product.

There are undoubtedly risks associated with increasing scale in intensive livestock production, but high standards of technical and risk management and the judicious use of technology are key to successfully mitigating them and capturing the clear commercial benefits that exist.

The authors conclude that the economies of scale that are achievable in intensive housed livestock systems will continue to be a powerful driver of rationalisation over time, in an increasingly deregulated livestock sector.

Ultimately the market will dictate how and where food is produced, but we do not see this as a zero-sum game. The UK currently has a significant net deficit in both dairy products and pigmeat and the potential exists for UK producers to both address that deficit and to supply growing world demand for both these products.

At a time of industry-wide emphasis on resource efficiency and sustainable productivity growth, livestock producers, like all other businesses engaged in food production, will need to adapt to a rapidly changing environment. To deny that opportunity to those with the capacity, capability and willingness to do so, compromises not only their future sustainability, but potentially that of the broader livestock industry in the UK.

There is without doubt space for a diversity of production systems within the UK, that can synergistically exploit our broad resource base and deliver sustainable, market-based solutions that will benefit UK agriculture, consumers, and the wider economy.

However, engaging positively with those consumers and the wider community to enable that process to develop, unencumbered by the views of single issue groups, is potentially the most significant immediate challenge facing the industry.

In recognition of that, we have compiled a list of 10 key recommendations that we feel would provide the requisite evidence base and support the development of competencies necessary to underpin a sustainable intensive livestock sector in the UK.

December 2012

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