Friday, March 29, 2024

History and the present

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There is a well known quotation from the Spanish philosopher George Santayana that says, “Those who cannot remember the past are condemned to repeat it.” So let’s take a brief look at the history of the New Zealand dairy industry, and see if old George’s insight has any relevance to it today.
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In 1814, the NZ dairy industry got under way with the Reverend Samuel Marsden importing a few milking Shorthorns, with the aim of providing dairy products to his mission stations. As the worthy Reverend was undoubtedly a charitable Christian gentleman, it goes without saying that the milk and butter produced was, at that time, provided to the impecunious settlers free of charge. Thus, while we might complain bitterly about the inadequacy of the current payout, the sober fact is that the NZ dairy industry made its start with a zero payout and from that miniscule beginning 200 years ago, has grown into the behemoth it is today. 

However, its expansion and development has definitely not been one of steadily and consistently onwards and ever upwards. The only thing that is consistent about the dairy industry and its payout is its inconsistency. 

Historically, since those early beginnings, prices have fluctuated steadily, and often markedly, rising and falling with the regularity of a metronome. The resultant uncertainty on farm incomes has always, of course, had a significant impact, not only for the farmers directly concerned, but also for the wider industry and the economy as a whole. 

Past governments have tried to iron out the worst excesses of these income fluctuations – generally by establishing price stabilisation schemes whereby if prices dropped more than 5% in relation to the previous year, the government would support the price to that level. If on the other hand it rose more than 10% it would be frozen at that level and the surplus skimmed off into a stabilisation fund, which was intended to be self-balancing in the long term. 

Needless to say farmers on the whole saw such schemes as a piece of enlightened legislation when prices slumped and a diabolical socialist plot when they rose. 

With the adoption of more laissez faire economic policies, price smoothing on an industry basis became a thing of the past and farmers were given the opportunity of carrying out their own individual price smoothing by way of the Farm Income Equalisation Scheme. In past years this was fairly well promoted, but more recently seems to have dropped under the radar a bit. This is a pity because in 2013-14, with the $8.40 payout, it would have been an ideal time to skim off the top of the income for that year and invest it in the scheme. With this statement critics will accuse me of being wise after the event. Not true. I have always been well aware of George Santayana’s dictum and its application to the dairy industry. 

Here, in far too many cases, the lessons of history have been overlooked in two vital aspects – first that dairy prices have always fluctuated significantly, and second, to a lesser extent, that departure from our traditional low cost farming systems, particularly when combined with a high level of indebtedness, created severe financial risk. Regrettably, before the current collapse there appeared to be a large number of farmers, or potential farmers who were convinced the gravy train was endless and $8-plus payouts would be a permanent feature and invested accordingly. Admittedly, I don’t think anyone foresaw the extremity of the fluctuation – from a record high to a record low in the space of about 18 months. 

Last year, in this column, in presenting the results of the previous year from the intensive versus low-cost system at the Stratford Demonstration Farm, I acknowledged the intensive system was the most profitable but pointed out if the payout for that year had been $6 the situation would have been reversed, and $6 would be a more realistic figure to long-term budget and plan on. I can ruefully imagine the reaction if I had suggested $3.80. 

In recent years I have been questioning the rush to intensification – pointing out that pasture drymatter can be produced for less than 5 cents a kilogram, whereas it would be difficult to get bought-in feed for less than 30 cents. At an $8+ payout it would be theoretically possible to produce milk profitably on a total diet of feed costing 30 cents/kg DM – this would certainly not be the case at a lower payout. 

Over the past year I have been heartened to see in the media this general philosophy being promulgated by an increasing number of farming and agribusiness commentators. Following on from this there is currently a bit of a groundswell in support of de-intensification. Unfortunately, many farmers will have, to a greater or lesser extent, locked themselves into an intensive system by a heavy investment in infrastructure so the opportunities for reverting to a more low-cost system might well be limited. However, for most farmers wishing to de-intensify the focus has been on reducing dependence on bought-in feed, and the principle mechanism for achieving this has been a reduction in cow numbers  which given the beef schedule over winter, has had significant benefits for cashflow. 

At the time of writing (mid-September), in Taranaki at least, pasture growth has been slow and thus available pasture feed low. For the farmer wishing to heavily reduce, or eliminate, the buying-in of feed the following options present themselves. Hopefully by the time this is read it will all be academic anyway.

  • Sell more cows – really closing the stable door after the horse has bolted. Having spent a considerable amount of time, energy, and expensive feed getting the cows through winter, it’s a bit pointless getting rid of them now they are coming into profit – as well as the drop in the beef schedule reducing potential income from them.
  • Grit your teeth and feed the cows on reduced intake until the spring flush of pasture growth arrives. Previous work at Ruakura has shown that early lactation cows can manage a moderate feed deficiency for about 10 days and then recover previous milk production levels when full feeding is restored. Past the 10-day period and the rest of the season’s production is compromised. Crucial factors will be cow condition and the degree of underfeeding. At best this would be only a temporary expediency. Risky.
  • Speed up the rotation and chase grass. Definitely not – unless present rotation is long, say over 30 days. Otherwise get on this treadmill and it’s extremely difficult to get off.
  • Put part of, or the entire herd, on to once-a-day milking. Milk production will be reduced and therefore feed requirements. Energy required for walking is also reduced. Evidence is most cows will fully recover production when twice a day is restored but others won’t so there could well be longer term suppression of total production. Risky.
  • Bite the bullet and buy in some palm kernel or alternative. While being costly short-term there is a long-term payoff by keeping production and condition up until the feed comes away, with a positive effect on total season production and mating. A major advantage is that this maintains the status quo. Feed can be brought in smallish increments and purchase stopped as soon as the grass comes away.

A feed deficiency in early lactation will result in a drop in level of production that will carry over for the rest of the season and a loss of condition that will adversely affect mating performance.

For anyone in this situation claiming he or she can’t afford to buy in feed the answer must surely be – you can’t afford not to.

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