Cockie confidence leads

Down on the farm, according to the
ACNielsen/Rabobank Rural Confidence Survey in July, overall confidence had climbed since the previous survey in May and 55 percent of all farmers were expecting agricultural performance to improve in the coming year.
The survey showed promising signs of farmers spending more in the towns and cities. More than 40 percent of farmers said they would spend more on their properties and 70 percent expected higher incomes.
Optimism was highest among dairy farmers, who widely expected to earn more revenue and planned to invest more on their farms in the next 12 months. Obviously, this mood was influenced positively by the payouts being announced at that time. Hamilton-based New Zealand Dairy Group declared final payout to its 7800 suppliers of $3.75 per kilogram of milksolids, 12 cents per kilogram higher than the previous year’s payout. It represented total distribution of $2.14 billion, culminating in year of record milk flows and the integration of the South Island company, Sidco, within the group.
Taranaki-based Kiwi Dairies paid its 5700 suppliers an even plumper $3.82, after increasing turnover by 47 percent to $2.6 billion.
While cockie confidence was rising, big bucks were being poured into capital developments in the manufacturing side of the year. NZDG has begun an $8.4 million upgrade at its Waitoa dairy factory near Morrinsville following $7 million development last year to allow the site’s milk powder plant to produce specialised nutritional powders. Production of these powders, used for feeding infants and adults with special dietary needs, has doubled to 46,000 tonnes in the past year and demand for the high-value formulas is growing strongly. New markets have opened in China, Korea and other parts of Asia.
Much more grandly, NZDG also announced $106 million milk powder plant will be built at its Clandeboye plant near Temuka, making this the company’s biggest processing site and the second biggest in the country after Kiwi’s Hawera plant. It will process up to 3.5 million litres of milk day and 13.5 tonnes of milk powder an hour. Much of the plant’s product is exported through the port of Timaru and the project inevitably will have significant flow-on effect for South Canterbury’s economy. The plant will handle the projected growth of South Island dairying, taking pressure off the company’s plant at Edendale in Southland during the peak of the season. new casein plant, meanwhile, will be built in Edendale.
The company in June last year slapped moratorium on new milk supply in South Canterbury and Southland while it considered its expansion programme. Announcements of the new plant were expected to lead to the moratorium being lifted and the company is forecasting seven percent increase in South Island dairying production.
Another big industry development is research centre in Hamilton, somewhat pompously called the “Centre of Excellence”, to be opened in two years. It will tap into the work of the Dairying Research Corporation, an AgResearch and board joint venture, and the Livestock Improvement Corporation.
Research will help the dairy industry generate four percent annual on-farm productivity increase.
But while the news media dutifully reported this announcement, they did not delve too deeply into the rationale or the productivity targets. In fact, the industry’s Aussie competitors are fast catching up in being able to claim being world-beaters at turning grass into milk. The refinement and better coordination of the research and development effort in New Zealand’s major export industry fundamentally is response to the realisation the Aussies are gaining ground.
The wake-up call was sounded when dairying chiefs looked into ways of improving productivity.
Traditional measures like the economic farm surplus and cash profit, excluding the cost of land, showed farmers making gains year on year. But when they devised technique for including the important land-costs element, they found annual productivity declines in the past six years averaged minus two percent. Annual results ranged from minus six percent to zero.
How come? Industry chiefs focused on research and development and the transfer of management and research information to farmers and found it wasn’t working effectively.
Education levels of people coming into the industry were declining and questions were raised about the generic R&D being done on-farm.
Although they are from lower base, productivity improvement rates in Australia overall are higher than New Zealand’s.
“While it’s no cause for absolute alarm, over time if they continue at that rate they will pass us,” said Dairy Board corporate affairs manager Chris Kelly.
An initial $650,000 has been approved to get transition board in place and to kick-start an education initiative as the first step to turn things around.

Bob Edlin is Wellington-based economic commentator and journalist.

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