Sunday, 20 July 2014

Stark Differences Between NZ and Australian Dairying......But Why?

The visual & financial differences between the New Zealand & Australian dairy industries at the current time are stark and startling! 

Why is the NZ dairy industry booming and Australian dairy farmers under so much pressure & having to dig deep to remain profitable. Both dairy industries supply into the same international market and Australia has a much bigger domestic population and local market. A strong local market is often argued as being a strength and likely to lift dairy farmers farm gate price. The economy in both countries is relatively strong & to a large extent was not greatly affected by the world financial crisis. Yet one dairy industry is hanging in by their fingernails while the other is buoyed (perhaps unrealistically!) by higher milk prices.

Visually as you drive through both countries, you can’t help but see that the New Zealand dairy farmers are doing well but that their counterparts in Australia look to be up against it. NZ dairyfarmers are expanding, investing and generally have had a very profitable year. Milk price has been high and apart from some areas of drought e.g. Waikato (now floods in Northland) the season has been kind. Farmers are out spending on machinery & infrastructure. Apparently numbers at winter industry meetings have been depleted due to record numbers of dairy farmers holidaying overseas. There have been record amounts of imported feed as farmers chase higher per cow production. In NZ there continues to be land use change out of sheep & beef and forestry into dairying. The intensification continues despite looming regional council environmental regulations, urban & political protests. I’m personally very concerned about the NZ environment & the impact of dairying. You could argue that “a dairy farmer with money in his pocket is a dangerous beast” but it does reflect the current wealth of dairy farmers.

One has to be careful generalising about any industry as there is huge regional & between farmer variations especially in Australia as the country is so vast & dairy farmers so spread. Climate change and extreme weather events continue to impact on Australia’s large land mass. Farms that once were dairy farms now run extensive beef enterprises. To survive in Australia dairy farmers need to be tough, resilient and have a range of risk management strategies. Australian dairy farmers are more capable and have better risk management ability than possibly any other nation. Right now the industry is losing farms, profitability is generally low, cashflows are under pressure. There is a loss of confidence despite high international prices. I saw little or no new on-farm investment and beef where I once saw dairy cows. Dairy farmers are changing milk buyers looking for a better deal. In NSW where there were once over 4000 dairy farms there are now just over 700 farms. The industry financial bench marking data for the year just ended has yet to be processed.

So why the huge difference between the two industries when world dairy prices have been at record high levels? I’m not sure I have all the answers. Both the NZ$ and the Aust$ are at record high levels which tends to depress farmgate prices and lift imported expenses. Dairy farmers in both countries are rushing head on into high input, complicated systems with more infastructure, more purchased feed & generally lower profit margins. In NZ land prices are increasing at a frightening rate. Dairy Research Foundation Symposium 2014

The definition between different farm systems is getting blurred & confused. Calving patterns (especially in Australia) have become very spread and herd fertility is dropping. These changes are apparent in both countries but more advanced & obvious in Australia. Everyone talks about pasture based dairy farming but in reality the pasture/grazing skill base & farmer knowledge is declining. Consultant John Mulvaney suggests that many dairy farm businesses are being propped up by the milk price i.e.they are very vulnerable to drops in farmgate milk prices. There are important lessons to be learnt from some of the best Dairy Farmer performances.

Dairy companies in NZ are profitable, efficient at manufacturing & marketing with SE Asia firmly in their sights. I was surprised to see in Australia major Co-ops investing heavily into the liquid market. Are the Australian dairy companies internationally competitive? Have farmers become production focussed (vanity) rather than profit driven (sanity)? Farmers in both countries (for slightly different reasons) may be coming more at risk, less resilient and more vulnerable to exchange rates, extreme weather events, more variable milk price & input costs. Boom & bust cycles have different impacts but create similar risks for dairy farmers. 

A strong cash flow, high profit margins, soundly based productive investment and a strong ability to service debt are more important than ever in this unstable & volatile world. OneFarm research into Resilience of New Zealand Dairy Farm Businesses
What do you think?

1 comment:

  1. As an Aussie who's never been to NZ, I don't have the answers, either, Tom.

    I do know though that your assessment is right: the majority of Australian farmers are hanging on by their fingernails and hoping that the hype around the China-led dairy boom is justified.

    On the other hand, it looks increasingly like we are about to get another "dunking" again next year and I suspect that will herald another wave of farm sales.

    I look on with envy across the ditch at quite a few NZ advantages:
    1. A climate so favourable that NZ Dairy Exporter reported a "moderate three-week drought".
    2. Soils that drain so beautifully
    3. Government support for the industry (eg: allowing Fonterra to be created)
    4. The density of farms that allows for fantastic support services
    5. Wonderful R&D that brings useful tools like the pasture growth monitor.

    Australian dairy farmers are often urged to behave more like our Kiwi counterparts in a very paternalistic fashion as if we could do better if we'd just be less risk averse and "think positive".

    Well, different behaviours and cultures don't just materialise out of thin air. The Australian environment is different and, sadly, Kiwis who ventured over to SW Victoria (sending land prices skyrocketing) experienced first-hand how tough it can be a couple of seasons ago.