Economic impacts of constrained replacement heifer supply in dairy herds

In recent years, environmental policies, especially in North-western European countries have put pressure on the total livestock on a dairy farm. On closed dairy farms this primarily has resulted in a reduction of the heifer rearing unit to maintain the production unit. The economic consequences of constrained replacement heifer supply on herd level have not been investigated. The objective of this study is to study on herd level the economic impact of suboptimal replacement decisions due to a constrained replacement heifer supply. In this study, we combine a single-cow MDP (Markov Decision Process) optimization model with dairy herd dynamics simulation of 10 years to account for the interdependency among dairy cows within the herd of 100 cows. Besides the base scenario of following optimal replacement policy, we simulated three input scenarios of constrained, excess, and variable replacement heifer supply. In the base scenario, optimal replacement policy resulted in a herd gross margin of €155,108, 11% voluntary replacement rate, 24% involuntary disposal rate annually for a herd of 100 cows. Constrained as well as excess heifer supply resulted in lower gross margins of €85,878 and €138,406 respectively, compared to the base scenario. Constrained heifer supply also resulted in 39% reduction of herd size, involuntary disposal of 17.5% and no voluntary replacements (0.1%) on average per year. Variable heifer supply scenario resulted in lower gross margins (€115,127), lower voluntary replacement rate (4%), highest involuntary disposal rate (28%) but did not result in reduction of herd size, compared to the base scenario. In conclusion, we developed a combination of cow level optimization with a herd level simulation to study the economic impacts of constrained replacement heifer supply. We found that severely constrained, excess, and variable heifer supply result in reduced herd average gross margin. Optimization replacement policy in case of limited heifer availability requires an inter-cow comparison to determine which cows need to be replaced first as this study shows. By demonstrating a simplified approach of combining individual cow optimization with herd dynamics simulation, we accounted for the inter-dependencies within herd. Such an approach can be instrumental in studying environmental impacts, longevity, and welfare of cows when heifer supply is constrained on a herd level.