Production at all costs bad dairy policy

Taieri dairy farmer Ad Bekkers says farmers must return to being low-cost milk producers. Photo...
Taieri dairy farmer Ad Bekkers says farmers must return to being low-cost milk producers. Photo by Neal Wallace.
Ad Bekkers doesn't worry about the dairy payout, not because he is in denial, but because it is beyond his control.

But costs are something the Taieri dairy farmer of 22 years can control, and even when the payout reached $7.90 a kg milk solids (kg/ms), he aimed to keep his costs at $3 a kg/ms.

It was the one factor he could manage.

Income was influenced by so many factors outside his and Fonterra's control, such as the behaviour of other producers, the European Union's Common Agriculture Policy, demand and exchange rates.

"It was $7.90 kg/ms last year and this year we could be looking at $5," he said.

Dairy farmers needed to return to their strengths, and that was being efficient, low-cost milk producers, attributes which some had lost when the payout soared.

Exporters such as Fonterra also relied on sourcing milk from low-cost systems to be successful.

"We have to go back to the old days. We are an export producer and we have to be a low-cost producer."

There were no guarantees with the payout, Mr Bekkers said, and optimistic predictions the sector was entering a high payout era should have been tempered because there was no certainty it would actually happen.

Mr Bekkers believed over a 10-year period, average incomes would be higher.

But over that period, returns were also likely to be more volatile, evident by Westland Milk Products downgrading its forecast this season from a range of $5.20 to $5.60 kg/ms to $4.10 to $4.50 kg/ms.

Because of that, he said farmers needed to keep a rein on costs.

The reality was that the extra milk production achieved through more or better quality stock feed may pay dividends when the payout was $7.90 kg m/s but cost the farmer money at a payout of $5 kg/ms.

There was also the risk that higher stocking rates could damage pasture in a tough spring or put high-stocked farmers at the mercy of inflated feed prices when grass was short.

Some of the pain expected this season has come from the high price paid for land, up to $45,000 a ha, which meant farmers needed to achieve a certain level of production and, therefore, income.

"They paid so much for land they have to produce to get a return. It creates tension when the payout drops."

Investment decisions were made by individuals making business assessments based on their own situations, as he did recently when he bought a neighbouring Taieri dairy farm.

If his venture failed, he said he would have no-one to blame but himself.

Mr Bekkers said his primary goal was to survive, and to do that he aimed to keep costs low and be a leading milk producer.

The coming year would be tough and was already affecting some sharemilkers who have seen their equity eroded as cow prices have fallen.

A cow that was worth $2800 last year was now selling for $1800.

It was also a time when farmers could make long-term management changes to their business to make them stronger.

Mr Bekkers believed the reality of a falling payout had not hit home yet.

"I still think a lot of farmers are not worried enough, given the situation overseas.

"I think farmers haven't thought about it yet, but are still trying to produce as much milk as they can.

"But if the payout is falling, they should be looking at changing their management. Have they put their farm in place for a $5 payout?"

 

Add a Comment