Kiwi farmers are getting mixed messages from government and councils on nutrients, climate change and growth, says Waikato veterinarian and agri-ecology consultant Alison Dewes. She thinks farmers are the victims of poor leadership.
South Canterbury Federated Farmers chairman,Mark Adams: Farmers and local businesses are wearing the tension between …
South Canterbury Federated Farmers chairman,Mark Adams: Farmers and local businesses are wearing the tension between local and central government
However, she also thinks by 2025 New Zealand will have a stronger pastoral industry emitting 25 per cent fewer greenhouse gases, 40 per cent fewer pathogens and nitrogen, and earning 60-100 per cent more profit.
“There’s been modelling done to show we can reduce the nitrous oxide component that affects the nitrogen cycle by around 40 per cent. All this without reducing a farm’s profitability,” she says.
“The paradox is the new freshwater plan. It has set bottom lines of 10 times more nitrogen and four times more faecal coliforms for the rivers, giving farmers the signal it’s a ‘free for all.’ The public feels agriculture isn’t pulling its weight. For example, a 2014 public survey showed most thought regional councils had a conflict of interest by both protecting water quality and promoting large-scale irrigation for farming.
For farmers to embrace change they need to know that they are going to retain or increase the profitability and …
For farmers to embrace change they need to know that they are going to retain or increase the profitability and resilience of their business
“We have about 50 per cent of our regional plans in place and the dairy sector has advocated for a grandparenting approach – meaning the nutrient loss rights to water have been largely allocated to that industry. If you have a leaching of 150 (this is very high) you just have to show a percentage reduction over time.”
“This has cannibalised the nutrient loss rights from the arable and red meat sectors because they have been capped at quite low levels. This sends a signal to farmers that if you are a polluter you will be rewarded and the innovators penalised.That’s what I mean by a total paradox.”
Macroeconomist for Ropere Consulting Peter Fraser isn’t as generous as Dewes.
“I don’t agree that it’s nobodies fault. There has been systemic negligence across the top echelons of DairyNZ, Fonterra, Federated Farmers, academia and central government since 2000.”
One reason we have such poor environmental outcomes is we accept poor economic decision making, Fraser says.
He says the mega-farms aren’t economically viable and with decent economic analysis better environmental outcomes would follow.
MAF policy work in 2008 showed 250,000 cows could be removed from Waikato and “no one but ‘the environment’ would notice”.
South Canterbury regional chairman for Federated Farmers Mark Adams agrees with Dewes to a degree.
“Farmers and local businesses are wearing the tension between local and central government, he says. ” Local government must regulate and maintain the environment, and sometimes the dialogue between the two is lazy and farmers and local businesses are left to meet the needs of both. When Drewe says farmers are the victims of poor leadership, this may be, but we are certainly the victims of conflicting agendas.”
The other mixed message is around growth, Dewes says. Farmers get the message that growth is good. This underpins the Fonterra model. Fonterra makes more and more milk resulting in more irrigation schemes and more intensification, with the premise to keep growing more milk out of New Zealand with no limits.
“Its not surprising farmers have been side-swiped by this crash. The central and local governments never saw it coming because they were playing with growth. In reality, growth can’t be limitless because at some point we will flood the world with milk. This is exactly has happened and the price has crashed.”
“Growth is also in tension with supply and demand,” says Adams. “As global demand grows, kiwi farmers are being reminded that they aren’t the only producers in the game. They must be the smartest and most cost effective to offset the geological difference and turn a profit.”
Fonterra CEO Theo Spiering told farmers in 2014, that 60 per cent of dairy expansion was based on conversions and more cows, and 40 per cent on more productivity. He disagreed with the environment commissioner’s comments that more dairying meant a drop in water quality and said the industry could grow by two or three per cent per year for the next 10 years. In reality, the public became annoyed, Dewes says.
Fraser agrees with Dewes that a growing milk supply underpins the Fonterra model. Fonterra is a ‘tolling company’ – to make more money it needs to toll more milk, he says. This suits the government – they want higher export receipts and greater volume is one way of achieving this. It helps explain the message to farmers that ‘more is more’ and ‘big is better.’
“However the wheels have fallen off this ideological bandwagon,” Fraser says. “Firstly, rather than funding new mega-plants like Edendale by getting farmers to purchase extra shares, Fonterra has borrowed. This is part of the reason its balance sheet is an ‘absolute mess.’
“Secondly, as all the good dairy land has been used up, farming has spread into increasingly dubious areas. The result is farms with very high production costs, and the irony is that many North American and European farmers are now more cost competitive than these farms are. The tragedy is these shiny new ‘state of the art’ farms are increasingly resembling very expensive white elephants.”
DairyNZ general manager research and development David McCall says DairyNZ’s focus has always been on increasing on-farm profit and resilience through greater efficiency – this means increasing farm output relative to farm inputs. Sustained profits for dairy farming over previous decades fuelled industry growth, especially expansion into new regions and conversion of other land use, he says.
“Intensification of farm systems with the use of supplements and higher farm debt are the consequences. Farmers intensified as an alternative to buying more land as land values climbed. ”
Dewes says we know growth can’t be limitless because at some point we will flood the world with milk.
“This is exactly what’s happened and the price has crashed. We sucked water from the rivers and the Government encouraged irrigation schemes that led to nitrogen levels in the ground water in Ashburton being above the world health standard. And the commissioners are still encouraging growth.”
For farmers to change they need to know they will retain or increase the profitability, Dewes says. They will have to satisfy an increasingly aware customer and be more profitable while farming inside ecological limits. The common notion held by farmers and industry is that if they are constrained by nitrogen leaching caps, business will become less viable. This does not need to be the case and information on reshaping profit and farm systems is needed.
“Currently, the idea is that more production is the best strategy for a higher national GDP,” Dewes says. “But volatile economic and environmental conditions in the future will force agriculture into a paradigm shift where output and debt are replaced by increasing profit and well-being. A shift towards “systems” thinking and away from single production orientated goals is needed.”
Dewes thinks some farm configurations will result in lower environmental risk and greater economic resilience. Resilience includes dealing with unexpected events like the volatility of feed, milk price and seasons. Dewes found that more intensive dairy farms carrying more cows per hectare are more dependent on bought in feed and can perform strongly in years of high milk price. However these systems are more vulnerable to increased environmental risk and the need for strategies like dairy barns, supplementary feeding and advanced effluent management. As a result, they involve higher capital investment, increased debt and compounding business risk.
McCall claims DairyNZ has always maintained the ability to efficiently maintain pasture is the best determinant of profitability across all farm systems.
“This has been our advice to, and research for, farmers. Pasture and the ability to turn off supplement use is also the foundation of how we are able to manage volatility,” he says.
“There have been many factors driving intensification, farms systems, change and growth. The result is a key “competitive” objective – increase on-farm profit and resilience through greater efficiency.”
Fraser says the advice from Fonterra and DairyNZ for farmers to intensify and expand into non-traditional dairy areas has resulted in farms that are unprofitable and overstocked. Some level of de-stocking will be required to restore profitability. In many cases, this could be as high as 30 per cent and in extreme cases,100 per cent, as these farms have cost structures that make them non-viable.
“De-stocking will depend on the characteristics of the particular farm,” he says, “and blanket ratios shouldn’t be applied as they lead to more harm than good. The decisions about stock levels depend on a host of other factors. It’s not simply delaying buying a new Hilux or sacking one of your farm workers. It requires a thorough understanding of a farm’s marginal costs, and none of the existing models such as Farmax can handle that.”
“I don’t agree intensive farms did well when prices were ‘good.’ In my view, from a profitability perspective they were simply less bad, and now they are astonishingly awful,” Fraser says.
Dewes says New Zealand farming as a whole is struggling to reform into a sustainable system after years of focus on production rather than profit. It is not single actions in a farm system that improve economic resilience when environmental limits are put in place, but rather the whole management approach, that combines the strength of the people, animal and landscape capabilities.
“There is good research to say we can do things better, farming is not a failure, DairyNZ and red meat sector research shows this,” she says. “But at the end of the day, we have got to face the fact that they are only going to get $4kg/MS for the next couple of years.
Fraser says to say stock numbers will need to decrease by 30 per cent risks being turned into the type of benchmark/rule of thumb that “got us into this mess in the first place”; when the reality is much more nuanced.
“For example, a farmer whose marginal revenue (MR) is greater than marginal cost (MC) can add cows. But a farmer whose MC is way above MR will probably need to reduce by closer to 40 per cent. Most farmers will have MC greater than MR but depending on farm-specific factors will depend on what their destocking rate will be. Yes, for some it will be 30 per cent, but I suspect for the others it will be something different. Indeed, for places like Hinds I suspect the de-stocking rate will be 100 per cent as they are non-viable because of high and sticky cost structures.”
Dewes says her empathy lies with farmers because they have been given a mixed message.
“I’m not anti-farming being a fourth generation farmer. But New Zealand is behind the times in its thinking; insensitive to what the consumer wants, and defiant over its true biophysical limits. There is a division between the urban and rural populations because the government is pushing for more growth and the public know this isn’t right.”