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Positive outlook for dairy
4FARMERS WEEKLY – farmersweekly.co.nz – August 9, 2021
News 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 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.
PROMISING: Farmers can expect a profitable season, despite challenges around on-farm costs and labour shortages, AgFirst economist Phil Journeaux says.
Phil Journeaux AgFirst
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Commerce report brings opportunity
Gerald Piddock gerald.piddock@globalhq.co.nz
THE Commerce Commission’s draft report into supermarket competition is a chance for growers to reset its relationship with retailers, food industry leaders say.
It could be the springboard for a fairer and more transparent partnership, Food and Grocery Council chief executive Katherine Rich and former Horticulture New Zealand chief executive Mike Chapman told growers and industry representatives at Horticulture NZ’s annual conference at Mystery Creek.
The wide-ranging report recommended creating a code of conduct between suppliers and the supermarkets to restore the power imbalance tipped in favour of supermarkets when it came to bargaining, which both Rich and Chapman supported.
Chapman says the report’s findings are not about apportioning blame and it was unfortunate retailers had been cast as villains in media coverage of the report.
“This isn’t about villains and good guys. This is about how we move forward to create a system that is fair and share margins fairly,” Chapman said.
The Government initiated the report because it believed people pay too much for their groceries. However, he says some growers may feel that consumers do not pay enough for the produce.
If a new partnership could be created between retailer, distributor and supplier, it would create greater transparency so consumers understood how produce was priced.
“It’s saying, ‘Can we do better business to ensure local industry flourishes and that we can manufacture and derive normal profits?’” he said.
Rich says if suppliers already had good relationships with supermarkets – and many do – that will continue; all the code of conduct will do is provide a few more rules and greater transparency.
A code of conduct does not just change laws, but it also changes behaviours.
“It’s the opportunity to lift everyone’s game and have a few more rules,” Rich said.
She says the code should cover bullying, coercive behaviour by supermarkets, including supermarkets’ demanding payments from suppliers for shelf space, waste or unwanted promotions.
“To go back to the theme of the last 20 years, it’s the shift of cost backwards to suppliers, it’s the shift of risk backwards and the margins go the other way,” she said.
It should also include making payments to suppliers made to be fair, timely and reasonable. She implored growers to work with them to determine what the code could look like.
“The commission’s put up some pretty broad principles, but it’s up to us as suppliers with the next submission process to furnish them with ideas,” she said.
South Auckland grower Howe Young says the report was the one and only chance for growers to get a code of conduct in place and make change for the better.
Since he started in the industry in 1966, Young says he had seen growers’ rights “trampled in the mud” with previous attempts to get a code of conduct in place rejected.
Young claimed his company was blacklisted for five years by one of the supermarkets after he spoke out about growers’ rights being eroded.
“I’ve waited 50 years for this day to see something like this come up and I think every grower in this room should be making a submission to the Commerce Commission. It doesn’t matter if it’s good, bad, whatever; tell them your experiences and the pressure you have come under,” Young said.
Chapman says he was surprised by the commission’s suggestion of collective bargaining by suppliers separate to a code of conduct.
He was interested in growers’ views of this and wanted feedback from them before the deadline of the next submission process at the end of August.
“This idea of having a special exemption for suppliers to collectively bargain with supermarkets or distributors is a very interesting concept and one that I think we should explore just a little bit more,” Chapman said.
He questioned the commission’s suggestion of changes or breaking up to the supermarket’s duopoly.
“New Zealand is a small country. It’s a long country and the concept of having more than two retailers selling groceries may not be practical,” he said.
If that was the case, it might be better to focus on making the existing system work better.
He also questioned the commission’s suggestion of breaking up retailers’ wholesale arm from its retail business.
“That would not work in our view, because you would be taking away the ability to service the market as efficiently as they do,” he said.
Howe Young Grower
CLEAN SLATE: The Commerce Commission’s report into supermarkets is a chance for growers to forge a better relationship with retailers, Food and Grocery Council chief executive Katherine Rich and former Horticulture New Zealand chief executive Mike Chapman said.
Darryl Jones – Technical Field Representative, Taupo
