There have been many discussions about the economics of robotic milking systems, many of them even questioning their profitability and viability. Today, more than two decades after the first commercial automatic milking systems (AMS) started in Europe, the technology has proven to be equal or more efficient than conventional milking systems (CMS), not only in terms of productivity but also profitability. In addition, AMS have proven to be a sustainable solution to improve the socio-economic conditions of modern dairy farming.
The economic evolution of AMS around the world is fascinating. There are multiple research projects from Europe, North America and Oceania evaluating this topic.
For instance, a Finnish study analyzed the profitability of AMS systems compared to CMS and found that between 2005-2006, CMS farms had higher profitability.
However, in 2007, surprisingly there was no difference between one system and the other, except in that same year the productivity per lactation per cow was higher in AMS. In 2003, the gross margins of farms with AMS and CMS in the Netherlands didn’t differ; up to 2010 the figures remained similar.
In the U.S., a study found AMS to have a net annual financial impact of $1,391 per year, but when quantifying and including quality of life and tools such as herd management software, the financial impact was greater, totalling $10,391.
This could be expected, as labor cost in the U.S. is typically not as high as in Scandinavia and other European countries. But what will the future hold? What about immigration policy and its possible impact in cases like the U.S.?
It is evident that with AMS, economic variables are sensitive and case-specific. Based on that, it is impossible to generalize and create a standard model. When planning an AMS project, it’s best to evaluate on a per-case basis – planning your work and working your plan.
While analyzing profitability and economic variables of your AMS business case, ask yourself, “Why do I want to buy robots?” As in many cases, your answers may be influenced by social factors such as quality of life, flexibility and health – reasons that are totally valid.
It was demonstrated in a study across Belgium, Denmark, Germany and the Netherlands that in most cases the social factors had a higher influence than the economics. More than 66 percent of the farmers interviewed said their quality of life had increased since milking their cows with robots.
When planning an AMS project, consider these nine factors which can impact the economic performance of a robotic operation:
As expected, when labor costs are high, AMS profitability also increases with labor savings ranging from 20 to 40 percent. More important is the quality and availability of labor.
Have you thought and analyzed what is the return of a low-performance employee compared to a high one? As I mentioned in a previous article, having the possibility to build smaller but highly skilled teams naturally increases the productivity and therefore the profitability of the operation.
Table 1 illustrates that the efficiency in terms of pounds of milk or cows per employee could be higher in AMS dairies, especially on a larger scale.
It is also important to remember that due to the new technologies included in AMS, other tasks like heat detection and herd management require less physical work and can be optimized substantially.
2. Milk production
Going from 2X to 3X will have a positive impact on milk production between 10 and 15 percent. If you are currently milking 3X, then the potential benefits in milk production can occur mainly due to better cow handling and overall management.
It is a fact that AMS dairies can hit 100 or more pounds per cow per day, but in general 80 pounds can be used as a standard. Productivity per robot can go as high as 7,000 pounds per robot per day, but 5,000 should be a general goal.
If you are planning a grazing or mixed strategy, then you must compensate lower milk production with a higher number of milking cows. If you are planning an organic dairy, then added value and higher number of cows will help you maximize profitability per robot.
Regardless of production system and milkings per day, focus all your attention on transition cows to make your work smarter rather than harder.
3. Culling rate
More research is needed on this topic, but in practice we have seen that under same or similar conditions, culling rates are lower in robotic herds.
This is important in all dairies, but especially in high-genetic-merit herds or dairies under expansion. Having the possibility to implement voluntary culling instead of losing cows involuntarily has clear advantages.
With feeding being the most important factor in the cost structure, it has a big impact on profitability. Evaluating this variable becomes crucial as cow traffic could improve efficiency based on current feeding strategies or create a negative impact.
If you have the possibility to grow all feeds including concentrates, you may want to feed as much grain as possible through a TMR, minimizing the extra pellet and processing costs and feeding just 20 percent of grain through the AMS.
In this scenario, the best cow-traffic solution is milk-first pre-selection. Conversely, if buying grain is something you have to do and you’re feeding over 50 percent through the robots, free-flow, milk-first and feed-first are all viable cow-traffic options.
5. Milk quality
In a Danish study, there was no significant difference in somatic cell count (SCC) between AMS and CMS. Bacteria counts were slightly higher in AMS dairies. The most critical factor here is bedding material and bedding management.
We did a survey of current VMS farms in the U.S. Midwest and found that, in general, dairies with sand bedding had a SCC lower than 150,000, while herds with mattresses were in most cases between 200,000 and 300,000, and composted bedded packs were always above 300,000.
This correlates with a recent study presented at this year’s Precision Dairy Management Conference where sand-bedded barns had cleaner cows than facilities with mattresses – directly impacting overall milk quality.
If making premiums is a priority, then choose a bedding system (in combination with a robotic system) that ensures dry, clean, stimulated teats.
6. Capital cost and initial investment
Capital cost is a key variable with high economic impact in the long term. An AMS can range between $175,000 and $240,000, depending on variables such as housing, cooling systems, cow traffic and herd management tools.
Using good negotiating skills while acquiring the highest-quality and most reliable machine is crucial. This, together with good financial conditions and lower interest rates, will favor the profitability and the long-term sustainability of the project.
The total cost per cow in the case of new facilities including milking systems and housing could range from $6,500 to $10,000. Of course that cost can be lower, like in cases of retrofitted facilities.
In either case, old or new, just make sure the money invested represents a direct benefit for the cow in terms of comfort so that it translates into higher feed efficiency, health and profits.
The best strategy to mitigate high capital cost and investment is keeping the robots at maximum capacity. Remember, the robot was built to work 24/7.
7. Maintenance and running costs
The relationship you have with your dealer is very important because the cost of support and maintenance can vary a lot. Make sure you also have a good level of understanding of your system. Being able to fix simple things and prioritizing support will save you money.
8. Utilities and supplies
According to a study published by Iowa State University, electricity can be higher by $945 per year for a dairy milking 120 cows with two robots, while water can be reduced by 50 percent in AMS. Regarding chemicals and teat dips, the costs are equal or lower than CMS.
Scale is a variable that optimizes inputs and fixed costs. It also maximizes outputs through synergies and volume. Although operations with two to four robots are the most common in North America, an ideal number to work toward in terms of efficiency in the future is eight robots milking 500 cows.
As expected in the beginning of the technology and for the first 10 to 15 years, AMS were not as profitable as CMS.
As technological developments and improved management strategies occurred two to six years ago around the world, many countries experienced a head-to-head comparison between AMS and CMS.
Nowadays, it is more common to find AMS dairies with higher efficiency and profitability.
Currently, economic variables are very sensitive in our dairy industry, and therefore every business needs to develop their own figures and strategies.
Just keep in mind that the common denominator for those farms that outperform is having a strategy in place, investing the most for the cow and keeping the basics in mind.
Last but not least, remember you may buy robots because of labor efficiency, higher milk production, higher profitability and some other economic aspects, but in the end you will love your robots because they can offer better quality of life, higher flexibility and more time to manage your herd to a higher level.