Are dairy cows replaced too early? Evidence from a structural model and cow‐level data

Abstract

In past analyses of animal replacement decisions, studies have claimed that dairy farms often replace dairy cows too early to be maximizing profits. I estimate a structural model of asset replacement to determine the motives behind early replacement of dairy cows. I specifically test whether the costs from premature removal, an event where cows are removed off‐schedule due to health problems, explain replacement ages on dairy farms that are considered by previous studies to be unprofitable. Using data from over 1000 Wisconsin dairy farms, I find that a cow prematurely leaving the herd costs $2300 per removal, totaling $75 million in lost profit over the sample period. This cost is larger than what has been previously assumed, especially for dairies with less than 200 cows, suggesting that replacement rates appear unprofitable because previous analyses underestimated these costs. Dairy farms may benefit from prioritizing cow longevity and health over productivity to both cut costs and address environmental externalities from dairy. These results highlight the economic damages from poor cattle health on US dairy farms and the extent to which there may be cost savings from increasing cattle resilience to conditions that cause unexpected removal.