NZ dairy challenged by need for strategic reset

[This article is the first of a fortnightly series I will be writing for Stuff (online) and associated regional papers ( formerly Fairfax, but now under the Stuff banner). As such, they are largely about bringing agricultural and rural issues to an urban audience. I am also writing fortnightly different articles) for Farmers Weekly, aimed more at farmers.]

There is great unease within the New Zealand dairy industry. Many farmers feel that the urban community plus a range of events have turned against them. Most are still proud to be dairy farmers but there is lots of stress and anxiety.

This stress and anxiety is despite farmers receiving good prices for their milk in the last two years. This has followed two preceding years when most farmers made losses and some share milkers were wiped out.

Right now, there are some short-term worries with product prices dropping at the last dairy auction. This is creating uncertainty for the year ahead. But in the longer term, the outlook for dairy is actually very strong.

The stress and anxiety come from a whole raft of issues, largely unrelated to product prices, although price is obviously still part of the big picture.

In the immediate term it is Mycoplasma bovis that everyone is talking about. Everyone thinks eradication is a great idea in theory, but many are cautious as to whether the plan is going to work. Mycoplasma bovis has great ability to hide, and it will be many years before we can be sure it has been eradicated. Some of us also think that the treatment might be worse than the disease.

Farmers are also troubled by the increasing compliance requirements relating to staffing, health and safety, nutrient management and animal welfare. These issues have been building over the last ten or so years. On the horizon, there are greenhouse gas emissions to also worry about.  Dairy farming seems so much more complicated than in the past.

There are many in the urban community who will say the answer is simple: get rid of the cows, or at least a great deal of them. If only it were that simple.

Any notion that most of our dairy land can be turned to horticulture is naïve. The soils and topography are not suitable and neither is the climate.

There are some great horticulture success stories, such as kiwifruit and wine. Apples have also come back into favour. In some niche areas, cherries and avocadoes are all the rage.  But when it comes to protein crops such as soy or peas for those non-meat burgers, then New Zealand will never have a competitive advantage.

There is good reason that New Zealand agriculture developed as pastoral agriculture. These farming systems were a natural fit for the soils and climate. If dairy declines, then it will be back to more sheep and more beef. However, sheep and beef can never replace the export income earned by dairy.

The broader urban community has little insight as to the overall dependence of the economy on dairy and tourism. The urban community seldom asks ‘where does the money come from that pays for all the imports?’.

Vehicles, machinery, computers, mobile phones, petrol, pharmaceuticals and overseas holidays are good places to start with that thinking.

Many seem to be saying that we have to value-add and make more money from less production. Well, I have been an advocate for more value-add for many years, but it is not just a case of waving a wand or even a New Zealand flag and saying ‘here we are with our wonderful products’. It is a long and difficult journey.

Some years back when Synlait sought investor funds for its value-add journey, Kiwi investors were not interested. If it were not for the Chinese investors, then Synlait could never have become the premier New Zealand producer of infant formula.

Dairy debt is also a worry.  Like home owners, many farmers are highly vulnerable to interest rate increases.  Farmers also understand that banks are fair-weather friends.

The value of dairy land is holding in some areas but dropping in others. Top quality small and medium sized properties still sell quickly, typically to neighbours. Lower quality farms are not selling.

Neither are there significant sales for larger properties, with overseas buyers effectively cut out and most local buyers having no stomach or capability for such big investments. Eventually, if prices drop sufficiently then some local business and family corporates will snap up the bargains.

Despite the challenges, at heart I am an optimist. I think we can find our way through to a better future. But we won’t get there by denying some realities or by organising so-called facts to fit predetermined stories.

I think we can provide solutions to the water quality issues, and we can provide valuable products to discerning Asian consumers. However, for that to occur many other things will have to change.

In the coming weeks and months, I will use this column to explore some of the many changes that are before us, not only in dairying, but in all aspects of our agricultural and horticultural industries.

About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
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6 Responses to NZ dairy challenged by need for strategic reset

  1. Rick Cameron says:

    Hi Keith,
    We met at Mike Brosnan’s porch during one of your busy days. Strategic reset is a good term. I was asked to write on our farming future and found it here at getting paid to grow topsoil for the watershed for the community and civilization. Abe Collins, Gabe Brown and Dr John Norman, the founders of Landstream with their developing tools warrant your closer expertise please. It gives our mana back and away from claiming health and environmental benefit brownie points. The public love ‘their’ land more than ‘their’ farmers as in evidence with the impossible burger and vetoing wool carpets in state buildings. What do you think? Cheers Rick Cameron .

  2. nigel64 says:

    Thanks Keith I learn a lot from your words here.
    I get to discuss some of the above issues with many farmers (I design riparian schemes and some farm planning). Our customers want to know where their food comes from; as farms get larger, moe impersonal and specialised it becomes harder to tell real verifiable stories and I would think a big part of those stories need to include NZ family farmers – corporate copy never reads true.

    It also seems banks are driving farmers to grow farm sizes ever upward – to the point where only overseas buyers can afford them. This seems a problem for many farmers; wanting to retain some flexibility, selling offshore is a moral issue for many as I see it.

    I remember when Synlait was first mooted – it certainly did not make me think of good food, but then neither does the word Fonterra. Stories need to start with places, faces and names. Corporations tend to have a homogenizing effect.

  3. Honora Renwick says:

    A few years ago in the Christchurch Press there was a mention that a local study had shown that growing tick beans instead of farming dairy cows produced more protein per hectare. I remembered that interesting fact and wondered if the day would come where turning over our podzol fields to tick beans would come to pass.

    • Keith Woodford says:

      Yes, more protein can be produced from beans and other legume (nitrogen fixing) crops than with dairy, but other countries tend to have a competitive advantage compared to NZ and so the economics are not good. Brazil is an example of a country that is very efficient at producing these types of crop and selling them globally
      Keith W

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