Friday, March 29, 2024

Closing the gap … quickly

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Lower operating expenses and capital costs mean some United States dairy farmers are not far off the New Zealand dairy industry’s cost of production.
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At a recent cow housing workshop in Morrinsville, Kim Mashlan from DairyNZ research and development presented a paper she prepared with David McCall showing US mega-dairies were making big efficiency gains which would provide competition for NZ in export markets in the next three to five years. A 10% shift in US supply meant a 1% shift in international markets, she said.

“NZ is very lucky at this point in time but we can’t be complacent.”

NZ’s cost of production was sitting at $33 per 100kg milk equivalents but before 2010 it was $28. Meanwhile the US was moving in the opposite direction, reducing its pre-2010 costs of $38 per 100kg milk equivalents to $35. US producers were also typically ahead on price with an average milk price over the past eight years of $8.45 while Fonterra sat at $6.36.

US domestic sales were declining at a time when the industry had the potential to expand production rapidly and was beginning to invest in manufacturing more aligned with international requirements. Mashlan said average US production costs didn’t show how well large-scale west coast dairy farms were performing. About 40% of US milk supply, which was four times that of NZ, was coming from 800 mega-dairies of more than 2000, and up to 30,000, cows.

“There may be farms that are larger,” she said.

That scale meant milk from about 540 mega-dairies was equivalent to all NZ’s supply. These operations used sexed semen and reared 35-40% of their replacements each year so could expand rapidly. They used state-of-the-art technology especially automation, to obtain precision management.

“That can mean just 1% wastage on feed and people are paid bonuses to get that right,” she said.

An operations manager would be in charge of 5000-10,000 cows while the rest of the labour force were at a lower skill level, being paid an average of $9-$12/hour compared with the NZ average of $13-$30.

Infrastructure costs were less than half those in NZ, ranging from $1100 to $1500/cow compared with $2500-$3500. Desert land in California could be bought for $500/ha and an open lot system could be set up for between $7 and $15/kg milksolids (MS), or $500-600/cow for a confinement system.

When it came to dairies, rotaries up to 72 bails were common, running 21 hours a day to milk cows three times. Almost all effluent was applied back on to their own cropping land.

In the top operations cows were producing more than 700kg MS with just 10kg drymatter needed to produce each kg MS. They ran on fine margins with 40-60% of feed being corn, the price of which was dropping as biofuel subsidies disappeared. Maize silage cost 16-25c/kg drymatter (DM) compared with 35-40c/kg DM in this country, lucerne hay or grass silage came in at 30-40c/kg DM, compared with 30-50c/kg DM here and grain, where the US had the biggest advantage, cost 24-38c/kg DM compared with NZ’s 40-55c/kg DM cost.

The NZ cost of pasture was put at 9c/kg DM but when the land it was grown on was included, at an average cost of $40,000-$50,000/ha and a 7-8% interest rate applied, that lifted to 14c/kg DM. That contributed to the NZ dairy industry’s onfarm uniqueness, along with its co-operative, information-sharing culture, Mashlan said.

There was a lot of credibility and recognition that it was a reliable supplier of safe food with responsive supply chains, she said. However, there was a need to farm to competitive advantage by using a precision approach and making appropriate infrastructure responses to environmental challenges. Farmers also needed to avoid over-reliance on imported feed and avoid paying too much for land.

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