Other dairy farmers must be also feeling the pinch and how sharemilkers have even survived this long I do not know. So I agreed to do the interview and make a video.
The footage is not very positive – well, it kind of is because I am having a good season, courtesy of the good weather. But even being ahead on production is not going to save me from this prolonged low milk price.
Some bright spark that saw the video contacted me – with good heart, I am sure – and gently suggested maybe I needed to talk to an ‘expert’ and see what my options were.
To be honest, I do not really rate an ‘expert’ highly. Certainly, I do not feel I need an expert to tell me that with milk prices as low as they are heading and with a lease bill as big as I have the figures are not going to add up.
I am unfortunately quite capable of applying the maths myself, and do not like what I see. The ‘expert’ would also no doubt want to charge me an ‘expert’s’ fee for the honour of delivering the ‘expert’ opinion – because that is not budgeted for. I will pass on that idea. No thanks.
On the Stuff video, I said the current state of dairy farming in New Zealand is in crisis. Advisers are telling us to revert our farming right back to a low-stocked system and manage the pasture better.
Now, this is not bad advice – the problem here is a pathetic milk price and the even more pathetic advance rate of $3.15 a kilogram of milksolids, which barely covers fixed costs, let alone bills. The problem is not necessarily the system you have chosen to farm on.
While cost-cutting is obviously a must, most farmers, I am sure, are on about their third round of cost cutting – or cost slashing. After that annihilation, there is still not enough of the pie to go around. There is only so much you can do on farm. Once you have done all you can and it’s still not enough – then what?
I must say it is easy to get into a negative frame of mind and start looking for someone to blame.
Has Fonterra failed to protect its golden goose – the grass roots farmers – in an oversupply scenario, which could have been anticipated better?
We are always being told to expect volatility in commodity prices. We have known for years that prices go up and down but never before have the prices gone up and down so quickly and with such a huge degree of variation. Even the most astute business person must struggle to manage a seasonal differential in income of $4/kg. That scale of volatility makes a mockery of budgets and cashflows.
Going forward, there needs to be a Fonterra policy in place to somehow protect suppliers from the bottom end of volatility – and if Fonterra is a co-operative and therefore owned by the farmers, why is no one asking these questions and demanding some answers?
Farmers should not be finding themselves in this position. Surely there has been enough money generated by this massive milk co-operative to have some sort of scheme in place to tide people through the downside of prolonged massive volatility.
It is all very well saying ‘We have survived this before’. Actually, are you sure about that? I don’t think this has actually happened before.
So this time we have been caught with our pants down – unsubsidised and with a small domestic market. We really are at the whim of the international markets which are in disarray.
Federated Farmers hopes the Government will help – all I can say is don’t hold your breath.
I can think of many reasons that is not going to happen. I could just imagine the bad reaction of the misconceived general public to a government subsidy or aid package for dairy farmers. It would not go down well.
If Fonterra can’t provide a tool to help their own and continue to cut their tongue off to spite their face, then it will be up to individuals to somehow devise their own plan to handle volatility. Or surely the banks could come up with something. Also, it will be hard to provide funds going forward when you are already cleaned out from this low round of income.
The banks will soon start jumping ship because the figures simply do not add up and no-one can give any certainty around a recovery any time soon. If you are paying interest at $2/kg and you get a payout of $3.50, it does not take a rocket scientist to figure out that it leaves you with f-all to run the farm or live on, even if things are going okay weather-wise and animal health-wise. There are no guarantees of that necessarily happening either.
Up here in Northland, farming is tough anyway because of the volatile growth rates, low-fertility soil, constant threat of drought and low metabolisable energy grasses. Typically our production is less than dairy farms in other regions. On the positive side, traditionally the cost of farming here is supposed to be lower and farms do not cost as much.
I have 100 hectares at my disposal. If I was in Taranaki or the Waikato, I would be milking up to 300 cows on that area and hoping to produce maybe 100,000kg of milksolids. However, realistically I aim to milk 200 cows with some inputs to survive the summer and an early calving. In this low milk price scenario I was forced to cull that back to 170 cows and aim for production of around 60,000kg.
Fonterra is obviously struggling and I am pondering whether it is really in their best interests to even drive up my tanker track to collect a measly 1500 litres a day and drive it all the way to Whangarei for processing at Kauri.
I know for a fact Northland dairy farmers on family farms are seriously talking about throwing in the towel – even after 30 years of dairy farming.
They have had a gutsful and probably cannot stand to see their equity being eroded away. Even if they survive this downturn, then what? Work your guts out of another six years to pay back what you have lost on a $4.40/kg payout, followed by a sub $4.15/kg payout.
It’s not a very attractive option especially if you can cash in your share and go drystock farming.
Would that be playing into Fonterra hands? Let a few marginal farmers drop through the cracks under a prolonged low milk price? And then when thing pick up, it will be business as usual with only the farmers with strong balance sheets surviving.
Lyn Webster is a Northland dairy farmer.
Source: Stuff