Where to for Chiwi agrifood

The current plan for Chinese Yili to buy Westland Co-operative Dairy has brought renewed discussion about the role of China within New Zealand agrifood industries. Of course, the Westland issue is just one part of a much greater issue about the trading and political relationships linking our two countries.

There is a need for ongoing debate because the issues are profound. There is also a need for the debate to be informed.  I hope that what follows here will contribute to an informed debate.

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Westland Co-operative Dairy demise is self-inflicted

The approaching demise of Westland Co-operative Dairy (trading as Westland Milk Products) has come as a surprise to many people.  It should not have done so.  At the very least, either a partial sale or major joint venture has been inevitable for some years. Survival as a co-operative is now impossible.

Most of the people I talk to think the sale to Chinese company Yili is a very bad idea. West Coasters do not like it. Even Minister of Agriculture Damien O’Connor is of that opinion. And if a sale really is necessary, then the common perspective seems to be that it should be a local company.

In response, I say ‘dream on’.

Farming for cash and capital gain: the rules have changed

Regardless of whether or not a capital gains tax is introduced, the rules of farming have changed.  Cash is becoming a lot more important.

I recall going to a conference in late 2000 or thereabouts, soon after my return to New Zealand after an absence of close on 20 years. I recall a lecturer from Massey University expounding how farming in New Zealand involved two separate businesses.

The story went that there was a cash business based on production that was all about survival. And there was a capital gain business that was how wealth was generated.

Mycoplasma bovis eradication risks are much greater than admitted

Taxpayers and farmers are collectively committed to pay more than $800 million for eradication of Mycoplasma bovis.  It is therefore reasonable that they are provided with good information as to how eradication is proceeding.  Unfortunately, the current information from MPI is not the full story.

At the heart of the problem is the unwillingness of MPI to admit many of the things they do not know or are uncertain about. As one senior MPI person said to me in an unguarded moment, we would come across as clueless.

MPI likes all messages to be simple. Also, a key principle of command and control operations (a term used by MPI) is that social licence must be maintained. In that environment, the truth gets compromised.

The pain of Mycoplasma bovis is not being shared fairly

Anyone reading the official information from MPI would be entitled to believe that the Mycoplasma bovis eradication campaign was going remarkably well. However, amongst the directly afflicted farmers, things remain far from sweet.

MPI has acknowledged that afflicted farmers have taken a hit on behalf of the industry, but as one greatly afflicted farmer said recently to me, this is the only team that he has been part of where, as a team member, he gets left behind.

Dairy debt an outcome of wayward policy and land-banking

In a recent article, I wrote that high debt levels within the dairy industry will constrain the industry transformation that needs to occur.  Subsequently, I have been exploring how the industry got itself such a debt-laden pickle. Here is what I found.

Despite the industry now being well into the third season of good milk prices, dairy-farm debt with banks has been showing no sign of decreasing. The latest figures for December 2018 show total dairy-farm bank debt of $41.6 billion (RBNZ S34 series). This compares to $41.0 billion a year earlier and $40.9 billion two years earlier.  This equates to around $22.00 per kg milksolids (fat plus protein).

Finding the path for dairy

I have always been optimistic about the long-term future of dairy. I think it is likely that dairy will remain one of the pillars that underpins the New Zealand economy. But we sure do have some challenges!

The first challenge is that urban New Zealand does not understand the extent to which our national wealth depends on the two pillars of dairy and tourism.  Yes, there are other important industries such as kiwifruit and wine, and yes, forestry, lamb and beef are also very important. But rightly or wrongly, our population has been growing rapidly, and the export economy also has to keep growing. There is a need for some big pillars.

Somehow, we have to create the exports to pay for all of the machinery, the computers, the electronics, the planes, the cars, the fuel and the pharmaceuticals on which we all depend.