Les vaches are in the meadow. Elles s'y reposent.

"... dont les fermiers observent les bébés" is a phrase describing or giving more information about les vaches. Perhaps the calves are in the field also, but in this sentence it is not explicitly stated (they could be elsewhere like in the barn), and so all one can say for sure is that the cows are there in the field.

I, too, translated this as dont meaning including the farmers and calves. They were all in the field! Too ambiguous since dont can be translated two ways. If not, why not. I doubt I’ll be using this phrase in Paris but you never know! Merci.

This type of sentence is really frustrating because as the grammar gets more complex, it becomes ambiguous in one sentence without context. You are asking us to assume they separated the babies to observe them but they could be observing them in the field with the mothers. Is there something very specific in the grammar that explains that we can't assume the babies are with the mothers? Because I don't see an explanation in the "quick lesson" and it is a contrary situation to examples where "dont" means including.