Decision making in Norwegian dairy farming using mathematical programming : maximising farmer’s gross margin under subsidy regulations

2019

Norwegian dairy farming is characterised by increased consolidation and a wide array of

governmental support schemes. The farming industry can utilise business analytics to

assist the complex decision making facing Norwegian farmers. In this thesis, we develop a

mixed integer linear programming model that maximises the farmer’s gross margin under

farming activity and subsidy constraints.

We use the optimisation model to study a small, a medium, and a large dairy farm located

in Jæren, Norway. We find that all of the three farms have pure dairy cow herds in the

optimal solution. Subsidy’s total share of income is 30.2% lower for the large farm than

for the small farm. We also find that the marginal subsidy amount drops from NOK 2.07

for the small farm, to NOK 0.89 for the medium farm, to NOK 0.52 for the large farm,

representing a decrease of 74.8%. Additionally, we found that a milk quota reduction

from 135 000 litres to 105 000 litres for the small farm results in such a large reduction

of profitability that the farm is better off renting a larger quota to obtain maximal milk

production. Lastly, we found that a milk price reduction of 30% only has implications for

the large farm, which replaces eight dairy cows with eight suckler cows.

This thesis further discusses the use of continuous variables in a farming optimisation

model, as well as milk quota valuations and variable cull rates. In addition to the

optimisation model, the work done in this thesis also includes a separate input handling

system. This sets some basis for further work to develop a fully integrated whole-farm

decision support system for Norwegian dairy farming.