Abstract In Ireland, dairy farm enterprise gross margins have shown strong variation from year to year. This research evaluates the volatility of dairy farm gross margins using methods from both the income volatility and income inequality literature. Methods from the income inequality literature are used to decompose gross margins into the average difference between-farms over time (average performance) and the variability within-farms over time (volatility around the average). Dairy enterprise gross margins are expressed on a per litre basis. The methods are, therefore, accounting for changes in milk production during a period of large expansion in the aftermath of milk quota removal. A panel dataset from the Teagasc National Farm Survey in Ireland is used covering the period from 2015 to 2022. We apply the Arc Percentage change method to explore the extent of volatility in the returns to milk production. The Arc Percentage changes are large and reflect both improvements and dis-improvements in the gross margin per litre from year to year. The novelty of this research is that we decompose the variation in the returns to milk production into performance and volatility components. The decomposition results indicate that most of the variability in gross margins per litre are due to variations within-farm over time rather than differences between-farms in average performance. Thus, this research highlights the role of volatility in the returns to milk production and points to the need of better counter-cyclical tools to manage risk.
Pardeshi et al. (Fri,) studied this question.