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Calculating full costs for Swiss dairy farms in the mountain region using a maximum entropy approach for joint-cost allocation

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  • Lips, Markus

Abstract

Using data from the Swiss Farm Accountancy Data Network (FADN), this paper derives the full cost for all enterprises–also called ‘activities’ or ‘production branches’–of a sample of 44 Swiss dairy farms in the mountain region. For the joint-cost assignment among enterprises, we apply an approach based on maximum entropy, leading to a disproportionate allocation. The costs per kilogram of milk are calculated on the basis of enterprises involved in dairy production such as roughage, dairy-cow husbandry and calf rearing. Said costs come to CHF 2.40 on average and CHF 2.13 for the median farm. Both results are over three times higher than the producer price, highlighting the significance of other income sources such as direct payments. Labour and machinery are the most important cost items, accounting for 62% and 14% of total costs, respectively. Furthermore, the analysis reveals significant negative correlations between the full costs for milk on the one hand, and farm size measured in livestock units and farm income per family annual labour unit on the other.

Suggested Citation

  • Lips, Markus, 2014. "Calculating full costs for Swiss dairy farms in the mountain region using a maximum entropy approach for joint-cost allocation," International Journal of Agricultural Management, Institute of Agricultural Management, vol. 3(3), pages 1-9.
    • Handle: RePEc:ags:ijameu:236888
    DOI: 10.22004/ag.econ.236888
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    References listed on IDEAS

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    1. Lips, Markus, 2012. "Joint Cost Allocation by Means of Maximum Entropy," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126675, International Association of Agricultural Economists.
    2. Lips, Markus, 2014. "Disproportionate joint cost allocation at individual-farm level using maximum entropy," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182851, European Association of Agricultural Economists.
    3. Pierrick Jan & Markus Lips & Michel Dumondel, 2011. "Synergies and trade-offs in the promotion of the economic and environmental performance of Swiss dairy farms in the mountain area," Journal of Socio-Economics in Agriculture (Until 2015: Yearbook of Socioeconomics in Agriculture), Swiss Society for Agricultural Economics and Rural Sociology, vol. 4(1), pages 135-161.
    4. MacDonald, James M. & O'Donoghue, Erik J. & McBride, William D. & Nehring, Richard F. & Sandretto, Carmen L. & Mosheim, Roberto, 2007. "Profits, Costs, and the Changing Structure of Dairy Farming," Economic Research Report 6704, United States Department of Agriculture, Economic Research Service.
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    Keywords

    Livestock Production/Industries;

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