Economic benefits of mechanical soil aeration to alleviate soil compaction on a dairy farm

Abstract

This paper used investment analysis to assess the potential economic benefits of mechanical soil aeration to alleviate severe soil compaction on a North Otago Rolling Downlands dairy farm. Soils on this farm had been structurally damaged after 4 years of consecutive winter forage crop grazing. Reported benefits of mechanical aeration prior to resowing of pasture include a 13% increase in annual pasture production over 2 years. Estimated changes in dairy farm profitability from soil aeration have been calculated taking into consideration both the fixed and variable costs associated with the modelled farm enterprise. Response in farm profitability to greater pasture growth was realised through an increase in stocking rate and associated milk production. Net economic benefit from aeration (based on a milk sale price of NZ$6/kg milk solid) was $1354/year over a 12-year planning horizon, which equates to a net increase in profit of $67/ha/year of winter forage crop paddock that was aerated.

Keywords:

• farm profitability
• investment analysis
• mechanical aeration
• pasture production
• soil

Introduction

Soil compaction as a result of livestock grazing has the potential to reduce pasture production (Raper & Bergtold 2007). Generally, the process of natural soil recovery (i.e. restoring the soil’s pre-compacted porosity status) takes several months, if not years (Drewry 2006). Mechanical aeration of soil can speed up the recovery process by improving drainage, air diffusion and root exploration, which in turn promotes pasture growth (Drewry et al. 2000; Six et al. 2004). However, the overall benefit gained from soil aeration can vary across soil types, farm management approaches and tillage factors. For instance, the inherent structural vulnerability of soils (Hewitt & Shepherd 1997) and grazing practices following aeration (i.e. grazing of wet soils) influences the period of time over which the benefits of soil aeration are realised. Tillage factors such as shank selection, soil water content at the time of tillage and fuel consumption can also affect the cost and/or effectiveness (Raper & Bergtold 2007). Assessing the overall cost-benefit of mechanical aeration will therefore help to determine its suitability as a soil amelioration technique (Cullen et al. 1997; Pannell et al. 2006).

This study assessed the economic costs and benefits of mechanical aeration of structurally damaged soils prior to pasture renewal (via direct drilling). The research experiment on which this economic assessment was based was conducted by Laurenson & Houlbrooke (2014) who reported soil structure recovery (as measured by soil macroporosity and bulk density) over a 3-year period (2009–2011) after 4 consecutive years of winter forage crop grazing by cattle (2005–2008).

The effect of mechanical soil aeration using a ‘Clough’ aerator prior to sowing into pasture (ryegrass, Lolium perenne L. and white clover, Trifolium repens L.) was compared against natural recovery processes (i.e. no mechanical aeration). In both treatments, pasture was direct drilled at a rate of 20 kg/ha in January 2009. In the first 18 months of monitoring, Laurenson & Houlbrooke (2014) measured significantly greater porosity in mechanically aerated soils. However, no ongoing effect of mechanical aeration on soil structure was apparent beyond this period.

Average annual pasture production between May 2009 and June 2011 was significantly (P < 0.10) greater from aerated soils compared with no aeration (22.1 t dry matter [DM]/ha/year and 19.1 t DM/ha/year, respectively [Laurenson & Houlbrooke 2014]). The analysis presented in this paper considered the increased capital investment and operational costs associated with buying and selling stock in response to changes in pasture production due to soil aeration. Profitability was then measured against the same farm system where no aeration had occurred i.e. the base farm.

Methodology

Trial site

The experiment was carried out on an irrigated farm near Windsor, North Otago. The research site was north facing with a slope of c. 7°–15°. The Timaru silt loam soil type is classified as a Mottled Fragic Pallic soil by New Zealand soil classification (Hewitt 1998) and characterised by a fragipan or Cx horizon with restricted drainage. Soil B horizon depth varied across the slope from approximately 250 mm (hill crests) to 1.2 m (slope base) and water-holding capacity was approximately 130 mm/m (Houlbrooke & Laurenson 2013).

Investment analysis

An investment analysis was used to estimate the potential change in farm profitability due to mechanical aeration of damaged soils. When the aeration trial described by Laurenson & Houlbrooke (2014) commenced, the North Otago farm was operating as a beef enterprise. However, the farm was subsequently converted to dairy during the 3 years in which the trial was undertaken. This investment analysis considered the farm as a dairy milking enterprise with trial specifics such as animal weight, stocking numbers and feed allocation remaining similar.

The farm was fully irrigated over a 140 ha effective area and carried 376 milking cows (3.3 cows/ha) and 94 in-calf milking heifers. Average annual production (whole herd) was 411 kg milk solids [MS]/cow (Table 1). Data provided by the farmer were modified in order to represent a dairy farm where stock were wintered on a 20 ha area of forage crops on the milking platform as opposed to being sent off-farm to a runoff block. This area represents the relative proportion of a South Island dairy farm that is typically used for winter forage crop grazing each year (Bewsell et al. 2008). As reported by Laurenson & Houlbrooke (2014), an increase in pasture production due to soil aeration occurred in the 2 years after soil aeration, where an additional 2700 kg DM/ha was grown in the first year and 1200 kg DM/ha in the second year.

Table 1 Annual farm information (2010/11) for the North Otago Rolling Downlands dairy farm.

Variables	Parameters
Farm information
Effective area (ha)	140
Pasture production (kg DM/ha)	20,263
Stock wintered
Milking cows	376
In-calf milking heifers	94
Animal production parameters
Stocking rate (cows/ha)	3.3
Milk solid production per cow (kg/cow)	411
Assumed milk value ($/kg MS)	6.00
Total pasture demand (t DM/herd; base farm)	2432
Pasture demand per cow (kg DM/cow; base farm)	6140

DM, dry matter; MS, milk solids.

Two farming system scenarios were considered as part of this analysis, one in which the winter forage crop area was aerated prior to resowing of pasture and the other, the ‘base farm’, in which it was not aerated. The FARMAX^® Dairy Pro model (FARMAX 2007) was used to determine suitable stock numbers (including replacements), feed demand and productivity of farm scenarios. Gains in profit were realised through an increase in stock numbers in response to the additional pasture production after aeration. A sufficient number of cows and cow replacements were purchased to meet the feed produced within each system. As the initial increase in pasture production declined in the aerated system, cows were sold off the farm. At the end of the 12 year planning horizon (the assumed lifespan of the pasture before renewal [Bewsell et al. 2008]) all cows and replacements were sold. The Farm Monitoring Report for Southland Dairy (MPI 2012) was used to estimate costs per hectare (e.g. fertiliser), per cow (e.g. animal health, labour) and per enterprise (e.g. communication).

The cost of mechanical soil aeration was NZ-$165/ha (D. Kingan, pers. comm.); the total cost to aerate 20 ha of compacted soils in the first year was $3300. Farm costs included both fixed variable costs associated with the cow, the land area and the enterprise as a whole. The total capital investment per cow milked was determined based on an annual replacement rate of 20% and a replacement stock value of $1234 for rising 1-year heifers, $1806 for rising 2-year heifers and $2155 for mixed-age cows (Table 2; IRD 2012).

Table 2 Livestock value (per cow milked). Calculated based on data from the Inland Revenue Department national average market value 2012 and considering the cost of annual herd replacement.

Animal	Value ($)
Rising 1-year heifers	1234
Rising 2-year heifers	1806
Mixed-age cows	2155
Milking cows	2085
Replacement cows^1	246
Total capital value per cow milked^2	2332

¹Based on a replacement rate of 20% p.a.

²Incorporating the cost of replacement cows.

The real annual effective discount rate to service the initial capital investment of purchasing cows was assumed to be 2.5% per year (an estimate of the long-term risk-free interest rate; this was used as there is no inflation or change in capital value over time). Return on investment was achieved through the sale of milk at a fixed value of $6/kg MS. Considering a change in stocking rate enabled us to undertake analysis of a farm system where the value of increased pasture production was converted into milk production through the purchase of additional cows.

Annual feed demand was calculated using FARMAX^® Dairy Pro database for the South Canterbury/North Otago region (FARMAX 2007; Bryant et al. 2010; MAF 2011) and incorporated the number of animals in each stock class and the annual feed required for each stock class (t DM/cow/year; Table 1). Total annual feed demand for the base farm was 2432 t DM/year (20,263 kg DM/ha based on 120 ha effective area; or 6140 kg DM/cow).

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) was used as a measure of profitability and was estimated for each year. EBITDA does not include funding issues (e.g. loan servicing or investment of capital structure; both of which may also affect taxation). The 12 year income stream was then discounted at 2.5% per year to form a net present value (NPV), which was in turn converted to an annuity (Brealey et al. 2003).

The minimum increase in pasture production required (kg DM/ha) to return an economic advantage from mechanical soil aeration (i.e. a break-even point) has been calculated for a range of milk sale prices ($/kg MS). It was assumed that 56% of the additional pasture grown in response to mechanical aeration occurred in the first year while the remaining 44% was grown in the second year. This corresponds to the pattern of pasture production reported by Laurenson & Houlbrooke (2014).

Results

The base farm in year 1 required the purchase of 66 cows (at $2332; inclusive of their replacements) to utilise pasture grown on the 20 ha of the farm that was previously used for winter forage crop grazing. This represents a capital investment of $153,910 (Table 3). Stock replacement rate of the base farm was assumed constant at 66 cows/year across the 12 years of the analysis. The aerated farm supported an additional eight cows (74 cows in total, inclusive of replacements) resulting in a total capital investment of $174,421 excluding the cost of the aeration. In subsequent years, pasture production of the aerated farm supported fewer cows and therefore stocking rates dropped from 74 to 69 (year 1) and 69 to 66 (year 2) with surplus cow numbers being sold at $2332 per head. In year 12 of this analysis, we assumed all stock in both systems was sold (66 cows and replacements).

Table 3 Whole farm investment analysis of the base farm with and without aeration of 20 ha of winter forage crop area after 3 consecutive years of grazing.

	Base farm ($)	Farm + 20 ha aerated ($)
Capital investment
Cows ^1	153,912	174,421
Aeration	0	3300
Annual profit
Year 1	52,085	76,284
Year 2	52,085	66,891
Years 3–12	52,085	52,085
Net present value^2	494,807	508,699
Annuity (per year)^3	48,237	49,592
Annual change in farm profit
$/farm/year	–	1354
$/year/ha aerated	–	67

¹Cow value as in Table 2.

²Based on discount rate to service loan of 2.5% per annum.

³Across 12 years, based on a discount rate of 2.5% per annum.

In year 1, annual profit from the sale of milk, less costs, was 20% greater on the aerated farm relative to the base farm and 10% greater in year 2. In subsequent years, profits were similar due to the similarity in stocking rate. The net economic advantage from aeration was valued at $1354/year (annuity of the net present value). This is 2.8% higher than the annuity of the base farm and equates to an increased annual profit (over 12 years) of $67/ha of winter forage crop paddock that was aerated.

At a milk sale price of $6 kg/MS, more than 520 and 230 kg DM/ha more pasture must be grown in years 1 and 2, respectively, in order to gain an economic return from mechanical aeration (Table 4). At a higher milk sale price of $7 kg/MS, the minimum pasture growth response decreased to around 400 and 200 kg DM/ha in years 1 and 2, respectively. However, for lower milk sale prices the break-even point increased substantially, to 930 and 410 kg DM/ha at a $4.50 kg/MS sale price in years 1 and 2, respectively.

Table 4 Minimum increase in pasture production (kg DM/ha; relative to non-aeration) below which an economic gain from mechanical soil aeration is no longer realised. Included in the analysis is a range of milk sale prices.

	Milk sale price ($/kg milk solids)
Year	$7.00	$6.00	$5.00	$4.00
Year 1	400	520	740	930
Year 2	177	230	325	410

It is assumed that 56% of the total pasture produced during a 2-year period will be grown in the first year, while the remaining 44% will be grown in year 2. This corresponds to the pattern of pasture production reported by Laurenson & Houlbrooke (2014).

The economic benefit of aerating soils prone to compaction, such as the Pallic soils of the North Otago Rolling Downlands, will be greater than for less vulnerable soil types, such as those that are free-draining and have low clay content (Hewitt & Shepherd 1997). It is important to note that the process of soil aggregate development occurs over a long period, i.e. a number of years (Tisdall & Oades 1982; Six et al. 2004). However, subsequent stock grazing events that occur when soils are wet have the potential to curtail aggregate development and compromise pasture production (Drewry & Paton 2000). Stock management strategies that prevent grazing on wet soils will therefore improve the longevity in which the benefits of aeration are realised. This in turn will improve the cost-effectiveness of mechanically aerating severely damaged soils.

Conclusion

Our case study analysis indicates that soil aeration prior to resowing pasture will increase profitability by providing additional pasture production that allowed for an increase in stock numbers and milk production. At a milk sale price of $6 kg/MS, the economic break-even point for increased pasture production from soil aeration was substantially lower than the quantity grown. Therefore, the profit gained in milk production more than compensated for the cost of aeration. It is important to note that the relative advantage of soil aeration will vary in response to milk sale price, soil type, degree of initial soil damage and post-aeration grazing management when soils are wet. Therefore, we suggest aeration is a valuable tool for ameliorating soils that are severely compacted. However, there will be limited gain from soil aeration when differences in pasture production due to compaction are low and may be less than the economic break-even point.

Acknowledgements

This research was supported through funding from the New Zealand Ministry of Business, Innovation and Employment (formerly The Foundation for Research, Science and Technology) through the Land Use Change and Intensification (LUCI) programme (Contract C02X0304). The authors would like to thank Grant and Elle Ludemann and Duncan Kingan. Femi Olubode-Awosola and Rex Webby developed the early conceptual framework and contributed to collection of data for the analysis.