«A good farmer cannot be one that makes no money,» said consultant Tony Robertson at the South Island Dairy Event in Invercargill on Tuesday.
Many of the SIDE workshops focussed on getting through the downturn in the dairy industry, whether in business or personally.
Robertson said dairy farmers had generally been spending more as they earned more in better seasons and it was only in the past two years that they had cut costs.
He challenged delegates to find their own answers to issues within the industry.
«My definition of a good farmer is someone who feeds their stock well, looks after their stock, looks after their people and enhances their environment but one who makes a profit on average over time.»
The average dairy farmer had made no money in the last eight years, he said.
It was farmers’ responsibility to make their business resilient and recognise they were the ones responsible for their business, he said.
«Big picture objectives should not change over time.»
Lincoln University agricultural economics professor Alan Renwick explained what was happening with dairying in the European Union (EU) and China.
Farmers were not feeling the full effects of market changes in Europe because of EU intervention and coupling, with 50 per cent of dairy cows receiving payments.
Meanwhile, PwC Waikato managing partner Brent Goldsack said profit was what would make dairy farming businesses profitable.
The idea that production had only dropped 1.7 per cent last season was shocking to Goldsack considering the price had halved.
«What are we thinking we are getting paid nothing for it? So production, the ‘P’ epidemic as we refer to it, we’ve got to solve it somehow, it’s got to go back to profit.»
Farmers needed to use tools available to them so they could understand their data, he said.
MyFarm executive director Grant Rowan said farmers needed to look forward, instead of backwards.
«We used to spend a heck of a lot of time looking through the rear vision mirror and analysing what happened last week, last year but we’ve tried to turn our thinking around now and we’ve spent a lot more time looking out through the windscreen. The windscreen is a lot bigger, you can see a lot more through the windscreen but there’s one thing about this picture there is a great wide view ahead but we actually can’t see what is in the horizon.»
There had been $9 million of new debt added a day in the dairy industry for the past two years and that new debt mostly had not gone to new productivity or investments, it had gone to funding working capital deficits, he said.
Even when profitability did return to the industry, Rowan predicted banks would end interest-free loans and want farmers to begin paying off their debt, he said.
«So effectively there will be less free cash coming out of the business even when profitability does improve.»
The idea of owner-operators cutting their cost structures down to $3.50 a kilogram of milksolids could be too harsh and $4/kg was more realistic, Rowan said.
Farmers needed to remember as they went through the downturn to ask themselves whether they were cutting fat off their system or cutting muscle, he said.
Taking too much out of soil fertility banks so farmers were growing less grass would not be profitable, nor would running a replacement rate so low that herd quality went backwards considerably in the long run did not add to the value of a business, he said.
«As a pasture-based industry we’ve got to drive the thing that drives our productivity and output, which is pasture so we’ve got to make sure the investment we do or don’t make into pasture to save a dollar this year is actually not going to undermine our ability to make $2 or $3 next year.»
Source: Stuff