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FARMERS WEEKLY – farmersweekly.co.nz – August 9, 2021
Positive outlook for dairy sector Gerald Piddock gerald.piddock@globalhq.co.nz AGFIRST’S annual financial survey has painted a rosy outlook for Waikato and Bay of Plenty dairy farmers, despite escalating on-farm costs creating future headwinds for the sector. Farm profit after tax jumped 31% in 2020-21 thanks to a buoyant dairy payout, however, countering this was an 8% increase in farm working expenses compared to the previous year. AgFirst economist Phil Journeaux predicted farm profit before tax to lift 4% on the previous year to $330,400 for the current season, while expenses will increase by 5% over the season. The survey creates a dairy farm model and budget based on information drawn from 26 surveyed dairy farms across the two regions from 2020-21 season, as well as discussions from agribusiness representatives. That model is a family-run dairy farm of 133ha, wintering 381 cows and targeting 140,666kg MS for the 2021-22 season. Looking back at last season, Journeaux says the farms surveyed produced 2% more milk and the regions had an exceptionally good maize growing season, with yields up two tonnes on average. “All things being equal, our farm came out of last season in very good financial condition,” Journeaux said. Looking ahead at the current season, the kind winter has resulted in excellent grass growth and cows in good condition. The model was expecting an $8/ kg MS dairy payout, which should result in a healthy farm surplus for reinvestment. But rising costs had pushed the season’s breakeven payout to $6.94/kg MS, up from $6.54/kg MS in the season before. This is what the payout needed to be for the model farm to be able to pay essential expenditure. While
PROMISING: Farmers can expect a profitable season, despite challenges around on-farm costs and labour shortages, AgFirst economist Phil Journeaux says.
The feel-good factor is coming back. The offside of this is the issues around labour. Phil Journeaux AgFirst the average breakeven payout between 2014-15 and 2020-21 is $5.98/kg MS, over the past three years, that figure has crept up from 6.13/kg MS to just under $7/ kg MS. “The breakeven payout is slowly but steadily creeping up year by year,” he said. Likewise, farm working
expenses had also trended upwards. Feed costs made up the biggest portion of these expenses, followed by labour, fertiliser and overheads. He says the rate of increase in those expenses was greater than farm income when the two are compared. “In the long-term that’s unsustainable. The good news is that at the moment in absolute terms the income is greater than our farm working expenses, but if this keeps trucking, somewhere along the line, they’re going to catch each other,” he said. The industry-wide labour shortage was the most common issue among the surveyed farmers. All had difficulties in finding staff. There was also growing interest around new labour saving technologies such as electronic
cup removers and electronic collars. Farmers are also shifting to more flexible milking systems and work hours for staff. On environmental issues, there was widespread uncertainty around regional council plans with Plan Change 1 in the Environment Court and no sign yet of a plan change for eastern Waikato. In the Bay of Plenty, he says its water quality plan – Plan Change 9 – had yet to resurface. By 2024, all farms are meant to have plans in place to reduce greenhouse gases and the following year, he says farmers will be paying a carbon tax of some type. “My feeling is that at this stage, the GHG issue is going to have a far bigger impact on farming systems than the water quality side of things,” he said.
For the average dairy farmer, that could cost them around $3500-$4000 a year and $6000 for drystock farmers, starting in 2025. “When I talk to farmers and ask them, ‘What are you going to do?’ Almost all of them say ‘I’ll just write a cheque, Phil’. I think that’s probably the most economically sensible thing they can do,” he said. He suspected they will keep doing that in the hope that an inhibitor is eventually made available that allows farmers to reduce their emissions. Despite the issues, farmer morale is generally good thanks to the high payout, good seasonal conditions and low interest rates. “The feel-good factor is coming back. The offside of this is the issues around labour,” he said.
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