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?
