Dairy industry's big challenge: a strategic reset

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 sharemilkers 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 a 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 10 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 avocados 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 a 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.
Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University. He is now Principal Consultant at AgriFood Systems Ltd. He can be contacted at kbwoodford@gmail.com
By: KEITH WOODFORD
Source: Stuff
Link: https://www.stuff.co.nz/business/farming/105334449/dairy-industrys-big-challenge-a-strategic-reset