Estimation of a premium for milk with a high concentration of unsaturated fatty acids based on farm and processor profit: A simulation study

The objective of this study was to determine, via simulation, the premium required for dairy farmers supplying milk with a high concentration of unsaturated fatty acids (UFA) to a dairy processor to equal the operating profit ($/ha) of average farms, under New Zealand conditions. Fifty average farms (AVE farms) and fifty farms that fed an oilseed supplement to dairy cows (UFA farms) were simulated. The processing of milk produced by AVE farms and UFA farms into skim-milk powder and butter was also simulated. The physical and financial characteristics of dairy farms and a dairy processor were investigated under two scenarios: 1) no premium for UFA and 2) a premium for UFA which equalled the operating profit ($/ha) of UFA farms to that of AVE farms. UFA farms were not different from AVE farms in yields of milk, milkfat and protein, but their farm expenses were greater (P<0.05) than for AVE farms. A premium of $0.15/kg milkfat (for each 0.1 g UFA/100 g milkfat increase) was necessary for UFA farms to have an operating profit ($/ha) similar to AVE farms. These results may be used to further evaluate the impact of modifying milkfat UFA concentration at the farm level.