[This post was first published in the Fairfax NZ Sunday Star Times on 30 November 2014]
Twenty five years ago, New Zealand dairy farms were genuinely family businesses. The average herd was about 150 cows grazing on 65 hectares. Less than 5% of farms had more than 300 cows. In total there were 15,000 farms milking 2.2 million cows.
By 2013 the average farm size had more than doubled to 141 hectares, and average herd size had increased to just over 400 cows. Nearly eighty percent of national production came from farms with greater than 300 cows. In total there were 11,900 farms milking 4.8 million cows.
The average farm with 400 cows is now worth about $7.5 million. This includes land, cows and Fonterra shares. In dress circle locations such as parts of the Waikato, it can be worth a lot more.
However, average farm data under-estimates the true concentration of ownership. Many farmers now own more than one farm, with the largest corporates holding more than 50.
The drift to larger farms will continue. Quite simply, it is existing farmers who have the financial leverage to buy up the small farms when they come on the market. I make that statement not as something either good or bad, but simply something that is happening by the natural order of a capitalist society.
Small farms can provide an excellent living but they seldom survive family succession. When small farms go on the market, the retiring vendor typically needs substantial funds to set up a home in town. With this requirement, the overall financing seldom stacks up for the next generation, especially if there is more than one sibling. And so either an existing neighbour leverages the finance off existing assets, or an outside team of investors becomes the new owner.
In Canterbury, the average farm is now about 800 cows and in Southland and Otago it is about 600 cows. The reason the South island has larger farms is because they have been progressively converted from sheep farms over the last 30 years. A typical sheep farm was often 640 acres (one square mile). In modern parlance that is about 259 hectares which will now run about 800 cows.
In contrast, the average farm size in the North Island is 330 cows grazing on 120 hectares. Hence, although the North Island has 75 percent of the farms it produces only 58 percent of the milk. Many industry people expect the South island to become dominant within the next ten years.
In the last 25 years, per hectare production has increased about 50 percent. The main drivers of the increase are more productive cows, more use of nitrogen, and more use of supplements.
Some of the apparent productivity increases are caused by the increasing influence of the South Island, where cows produce about 20% more milk than when farmed in the North Island. Although some humans might consider the South Island too cold, for cows it is typically just right. Cows have their own inbuilt furnace called a rumen which keeps them warm in winter. Conversely, on humid summer days in the North Island, cows struggle to keep cool.
Another factor affecting South Island production is the superior quality of the pasture. In Canterbury and North Otago, the droughts are managed with irrigation, while in Southland drought is simply not a key feature of life. In contrast, the lowest New Zealand per cow production is achieved in Northland where grasses such as Kikuyu provide lower quality of feed than the ryegrasses.
Twenty five years ago, the ownership of dairy farms was very much a family affair, often with both husband and wife milking. On larger farms, one or two farm hands would be employed. The hours were long, with no relief from the seven day a week twice a day milking. The traditional stepping stones were from farm hand to sharemilker and then eventually to farm ownership. The cycle was complete when the farm owners, once financially secure and with debt under control, would themselves employ a sharemilker.
Sharemilking is still common in the dairy industry but an increasing number of farmers now employ managers, particularly on the larger farms. On the smaller farms, owner operators still tend to milk seven days a week, but employed staff normally work to a roster, often with relief workers filling in on the days off. On most farms there is one worker for each 150 cows or thereabouts. On the larger farms, the owner or manager has essentially become the organiser and compliance person.
In the past, most farm workers aspired to farm ownership. It can and does still occur, but for most it is not a realistic goal. The key reasons relate both to capital and the greatly increased ratio of workers to owners. There are not enough farms for most of them to become farm owners. Instead, there are many more intermediate types of position, such as herd manager and second-in-charge.