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Central bank says financial stress among dairy farmers could 'rise markedly' if milk prices remain low in the new season

Central bank says financial stress among dairy farmers could 'rise markedly' if milk prices remain low in the new season

By David Hargreaves

Financial stress in the dairy sector "could rise markedly" if prices remain at low levels in the 2015-16 season, the Reserve Bank says.

Global dairy prices last week  hit a six-year low. Dairy giant Fonterra recently dropped its forecast milk price for farmers in the current season to $4.50 per kilogram of milk solids from a previous pick of $4.70. Including dividends, the total return to farmers is forecast at between $4.70 and $4.80, compared with $8.50 just a year ago. This suggests a drop in earnings this year of about $6 billion for Fonterra farmers alone and about $7 billion for the dairy farming sector.

Fonterra hasn't yet made its opening milk price forecast for next season - that will be done late this month - but the country's biggest dairy farm lender ANZ has this week lowered its projected opening forecast price to between $5 and $5.25.

Although much of the public attention from the RBNZ's Financial Stability Report issued today will be focused on restrictions imposed by the central bank on Auckland property investors, the RBNZ actually devotes much of its report to the worsening trend in global dairy prices and flow-on effect in New Zealand.

The RBNZ says that despite many farms being in a position to manage down working expenses, around one-quarter of dairy farms are believed to have negative cash flow for the 2014-15 season.

"The sector’s vulnerability to reduced incomes is increased by elevated indebtedness, despite moderate growth in borrowing since 2009."

The central bank said that approximately 30% of the dairy debt was concentrated among the most indebted 10% of farms.

"Indebted farms are particularly vulnerable to a period of reduced cash flow."

 

 

The RBNZ said therefore that continued low global milk prices in the new season could see financial stress in the sector rise markedly.

"Cash flow in the 2014- 15 season will be boosted by around $1.50 per kgMS due to deferred payments from the strong 2013-14 season, but deferred payments from the current season will be significantly lower."

Additionally, the RBNZ said that financial stress "would be exacerbated" if low milk prices led to falling rural land prices.

"The ensuing reduction in equity buffers could prevent indebted farmers from drawing on credit lines and result in a rise in loan defaults in the sector."

Looking globally, the RBNZ said dairy prices were likely to be supported by increased Chinese demand, as inventories revert to more normal levels. However, the recent removal of the European Union’s long-standing quota on dairy production and potential increases in US dairy exports were likely to weigh on prices. 

In New Zealand demand for farm land was being supported by low interest rates and an expectation that the long-term outlook for dairy prices would be supported by increasing Chinese demand.

"Nevertheless, declining farm incomes are typically accompanied by sharp falls in farm values, as occurred during the 2008-09 and 2011-12 seasons. In both cases, initial falls in farm values in response to lower incomes were amplified by a low level of farm sales."

The RBNZ said that dairy farm sales had declined over the past season in line with continued downward revisions to the dairy payout, leading to a moderation in farm price inflation.

"If the lower dairy payout were to be sustained, there is a risk that farm values could fall sharply and exacerbate the increase in financial stress associated with lower farm incomes."

The RBNZ said banks continue to have a largely positive view of the long-term outlook for the sector, and have been easing credit conditions for working capital borrowing.

"However, the availability of additional borrowing could be limited for some farms that already have elevated loan-to-value ratios (LVRs)."

There was "a significant crossover" between farms estimated to have negative cash flows in the current season and farms with already elevated LVRs (above 65 percent).

"Around 11% of dairy debt is owed by such farms, while farms with relatively high LVRs account for 27% of sectoral debt.

"It is likely that the number of foreclosures among these indebted farms will eventually increase if weak cash flow persists for multiple seasons. Bank losses associated with these foreclosures would be exacerbated if land values fall alongside weaker farm incomes."

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134 Comments

Hey, when the $8+ rate came out someone did an inflation adjusted list of the payouts. Do you still have those figures. Good chance, after inflation adjustment (include RBNZ "braking maneuver"), this is The Lowest Payout *ever*.

Like i say only asking enough to keep the lights on and pay legally required minimum wage to the staff. It's enough for a unqualified no-risk labourer to get $14.75 p.h. it must be ok for a farm worker in the stink and weather and facing NZ's highest death rate to get at least that.

After all; the company setting the price did buy all the milk, it was all perfectly to their specification, they're not taking paycuts or shedding staff; and they're busy building massive buildings, buying up huge amounts of shares in foreign corporations, and offering equity capital...... IMO if they can afford to offer equity capital ("MyFarms") then they can at least pay their minimum bill !!!

LIC publish the inflation ajusted payouts as part of the annual dairy statistics which can be found here: http://www.lic.co.nz/lic_Publications.cfm . The inflation adjustment used is the annual cpi rate to the end of June. In recent years the historic payout only goes back 20 years but if you click on the link to the 2002-2003 Dairy Statistics the published figures go all the way back to 1973/74 which can be updated to today by using the Reserve Bank's CPI calculator http://www.rbnz.govt.nz/monetary_policy/inflation_calculator/ .
Because I am a bit of a geek about these things I did all of that and according to my figures there have been 3 years where the payout was lower. 1990/91 was the lowest at $3.93 when calculated to June 2014 and then it was 1986/87 at $4.05 and 1987/88 at $4.39. The only other sub $5 payouts were 2002/03 @ $4.79 1997/98 @ $4.89 and 2005/06 @ $4.90. All these figures include the dividend which I assume will remain at 25 cents making a total payout of $4.75 for 2014/15

I talked to a guy who was working on the Pahiatua drier he told me has four more to do. The cost of all the new production.

Dairy farmers are all equal it's just that some are more equal than others

http://www.stuff.co.nz/business/farming/dairy/68383152/shanghai-pengxin-...?

And don't go thinking of farming sheep.

http://www.stuff.co.nz/business/farming/agribusiness/68488969/sheep-flig...

I'm surrounded by dairy farms, yet only one of them thought it was a good idea to lock in $7. At the time his bank manager mocked him for locking in so much. So you have to remember what the attitude was back then. Those farms that did lock in that $7 are costing the other farmers, yet when the shoe was on the other foot it was a different story. I don't think there is any moral high ground here.

I wanted to lock in however actual farming demands (such as water issues and mating problems) meant I missed the tiny window.

And many of us _did_ protest the losses of the "locked in" farmers, as 'not co-op principles' but the media and company said "they chose it at their risk" so it wasn't news.

This is why the Chinese are so eager to invest in New Zealand agriculture.

"Agricultural analysts say self-sufficiency goals intended to minimise China's dependence on food imports have resulted in mandated production of staple grains and starches that earn far lower profit margins for farmers than fruits and meats.

Some officials also fear that increasing efficiency and profits through mechanisation would ring Chinese cities with slums full of unemployed farmers.

But policies designed to keep farmers on small, low-yielding plots impedes the consolidation that could create economies of scale."
http://www.reuters.com/article/2015/02/12/china-agriculture-finance-idUS...

Farms with debt over $25kgms are toast. Falling land values will kill the traditional reverse equity finance model. Anything under $6 is a disaster for the industry, there'll be more of the Crafar type sales in the coming years, sans the Chinese white nights. Can't say I didn't see it coming, it's going to be worse when you combine it with the cluster#$%@! that is Auckland housing. Seven lean years coming up, and then what? The median peak oil forecast, of all studies, was around 2020. It's all on, like donkey kong.

Having walked the walk for 9 years, I'd say those figures look about right.

That's why I'm moving on. Plenty of corporates making cash but nothing going back on to the land. The only "profit" is from any Capital Gain/Capital Improvements/Holding value/conversion value.

That's why I keep saying Commerce Commission needs to ensure farmers are at least get 3% of land&plant value, + fixed costs, + real labour. 3% or median of the top 6 available retail banks savings interest options. If a bank can offer 3% retail on a deposit then I'm thinking that's minimum that a "invoice creating customer" should be able to inflict on its suppliers. It's just not in the countries interest to rely solely on Capital Improvement to create money (from primary resources).

I've got some interest plans ahead into energy scavenging at the household level. One chap put a 20mm pipe through a series of discarded soft drink bottles, connected it to a insulated water tank and used convection to give a significant temperature lift.

Another is running 100m of alkathene, or polybute, underneath the roof (not just on top of the ceiling). That also had significant hot water boosting potential.

Those tricks can make a solar hot water system or wetback work really well. Although for those with solid fuel a Solar Hotwater and wetback make a great 1-2 punch for sunny days and fire lighting days.
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Also have some interesting tests lined up using 20mm pipe, 20mm in clear tube, 20mm in clear tube but sitting in half of a broken PVC pipe.
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On a slight different note, some interesting stories of thermal memory using 5l and 20l containers with water or sand in them. They are particularly effective against frost threat (eg glass houses) as the cold trying to freeze the water to ice releases even more energy from the phase change.

There is also possibilities of increasing the energy storage ability using wet sand as a mass.
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Also be interesting to see how my one of these works (if it gets here):
https://www.kickstarter.com/projects/707808908/gosun-stove-portable-high...
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Lots of options to stop using transportation energy for basic problems, where we're just wasting what we get.
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Also have some interesting "borrowings" to check out hydro, grey water recovery, aqua and aero-ponics.
there's variations on vertical hydroponics. But also more classical horizontal designs zigzagging down walls or frames for common household products.

There's also the rise in modern cars with extremely low profile tyres, which make great vertical planters for potatoes ... much better than the old system, which was also so much work as the dirt and spuds always got sucked into the deep wheel space.
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With falling inputs I'm interested to see how local and central government intend to pay for what is needed to save the country. silly Wheeler.... hit the brakes when he should have gunned it, well thats what you get for having the jonkey as the navigator...

Good stuff! I think you're on the right track.

Farmers know the government will always bail them out, one way or another, especially a National government, which has always been little more than the political wing of Federated Farmers.

Of course, when I say "The government will always bail them out," I really mean "The government will borrow more money from overseas to bail out farmers and the NZ taxpayers will pay for it all."

Have no fear that the NZ government -- any NZ government -- will insist NZ dairy farmers remedy the cancer they've inflicted on the NZ environment... it'll never happen.

you speak rubbish Malarkey.
Since when have farmers been given a "bail out". The closest was when the floods happened in 2004 and the government - if the farmer proved they had no income - advanced them the Dole, on the condition they stayed and worked on the farm.
Likewise any "fencing grants" were for a portion of the materials only, and only on boundary fences.

Since when have farmers been given a "bail out".

Back in the late 70's when high street stockbrokers were forming family trusts to buy Public Trust farms and offsetting fencing and barn renovations against the trading and brokerage profits. I was watching real time.

Which would be 40 years ago....

those are the guys creaming the current situation since they've had 40 years to pay off that debt ... and that's if they'd only just bought the farm that year. So lets say 50yrs. They had 50yrs to pay off their loans.

What about farmers _in_my_lifetime_.

Just in case anyones wondering I'm not against the older farmers doing that. they were the survivors and good on them for making it work.

I'm concerned about the financial, economic and political environment -now- that hasn't improved in that time, and those who are "creaming it" at the cost of the new generation

sobering news, dairy debt understated:
http://www.radionz.co.nz/audio/player/201754230

in that non-farm assets have been borrowed against in order to provide "equity" for dairy syndicate or club groups that then then themselves have gone on to borrow farm debt.

Her view, being 50% of her farmer population in a jam here.

For the people that think, ha ha the dairy farmers are in trouble, I think if the figures you say are true the whole country is in trouble. I wonder how history will view the John Key government. I don't think they have done farming any favours. This large scale conversion of farmland into high production dairy mostly being sent to one market has been a high risk venture for NZ. I wonder if the reserve bank will be forced to drop interest rates to try and protect against a collapse.

Farmers and their advisors have not helped themselves. Back in the early 2000's I paid a Waikato dairy consultant a few thousand to advise me about buying a dairy unit in the NZD 3.0 million range - income to me was estimated at NZD 80,000. I declined and was countered with the claim capital gains in 10 years would more than compensate for the short income outlook. Stupidly or otherwise I walked away.

My rent (set at a measily 3%) = 72k p.a.

Last year - Horzions declared we needed an effluent pond, 70k.
Year before - Council decided we needed underpass under road, 55k.
We had the fencing rivers issues, I assume you wouldn't do that personally, so lets kick that in at around 40k.
this year we're up for new refrigeration in the plant. 30k minimum to the passive investor, pray the engineers get it right.

Soon the councils are going to be complaining about all the weeds choking up the creeks they ordered fenced off, that'll set you back a fair penny.
And housing standards will soon affect farm housing, and the farm workers are notorious for making houses bad - this one I'm in, took a _month_ for 4 people to clean. they thought they might have to condemn it.

You wouldn't see much of your 80k

tim12, I'm a committed environmentalist, but I come from a small town background (Taumarunui) and grew up with farming families in the district and derive no satisfaction from the current position dairy farmers find themselves in. I currently work in arable crop processing in the Ashburton

tim12, Though I'm a committed environmentalist, derive no satisfaction from the current financial position that farmers find themselves in. I came from a rural background, though not from a farming family, many of my childhood friends were. I sympathize with farmers' current predicament.

I reckon the majority of our country's corporate management, academia, the media, and public service have no especial attachment to this country or its particular character. Many of them aren't from here so why would we be surprised? They mouth the platitudes, but with their actions they demonstrate they have hold no allegiance but to an international global ruling class.

http://www.aljazeera.com/programmes/empire/2010/07/201072412511420297.html

I am myself a nationalist, in fact I am a passionate internationalist, but I love my country, warts and all and I am afraid to what extent it will change for the worse in the years ahead. I have many Chinese friends (primarily coming here on a working holiday visa), but am especially concerned to the degree which power brokers in our society have been prepared to abase themselves to serve the interests of wealthy Asians.

"Prime Minister John Key has revealed China's US$200 billion ($349 billion) sovereign-wealth fund has signalled its interest in a stake in NZ dairy giant Fonterra if it changes its capital structure.

China Investment Corp chief executive Lou Jiwei made the fund's interest in Fonterra, and other New Zealand assets, clear in a meeting with Key at the Boao Forum for Asia two weeks ago.

But Key stressed it was up to Fonterra's farmer shareholders to resolve the appropriate capital structure."
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1056...

The study reported suggestions by a senior executive at one Chinese company that low profits were maintained in order to increase market share at the expense of local, international and other Chinese companies, with the hope that less viable companies will be weeded out and only the most effective companies will remain."
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1065...

Thats one lady that has some seriously bad news for NZ INC. (RNZ podcast). Not that surprising though. I understand many queen street farmers borrowed to get in on the white gold rush. The farms have struggled to meet budgets and make profits as big dry after big dry has hit a lot of areas. Now a serious drop in payout will require these entities to up there borrowings. Ah but in the new corporate structure each shareholder has thre own banker, who may not look at the bigger picture. Some of these shareholders will require to exit which puts the whole structure at risk. These farms cant ask mum and the kids to take over the milkings or calf rearing. Or bite the bullet and reduce the personal expenditure. Who will be extra careful with the machinery to nurse it along? Who cares if the pump breaks down again, the $100/hr pump guy will have to fix it. Its not in the managers job description. Who would now vote for the family farms to outwit outplay and outlast the corporates?

My bet is on the corporate.

they have more influence at the table.
Pump keeps breaking down? New regulations to get pumps certified and regularly inspected, minimum standards including pond size and regular cleaning. Just drop in that $100k pumping and filtration system.

No problem for the corporate backers with off farm income and their shareholder banks.

Thousands of hours worth of work-investment that has to borrowed and repaid by the family work-hog.

We are seeing this process in the Refrigeration rules now.
Just saw it in the water quality rules last year (many local family family farms are having issues - but the corporates aren't even blinking, because they just hired engineers to fit "big pump and big filter" and just stuck as many as they needed to make the problem go away - because they couldn't trust staff to look after it. So for the corporates it was a bill they were going to have to pay anyway.

Like the LVR lift, these rules only punish the small New Zealanders. They don't even affect the bigger guys or coporations because they were facing these factors anyway - it just lifts the small guys cost structure up to the big time. that's how they screwed over much of the US....so I suspect whoever is pushing these policies is taught or backed by the same interests in the US.

It's interestingly enough, different to the Chinese traditional scams (which Fonterra keeps walking into, forcing buying junk, buy extra certification, stopping at docks for consumables, random fines. Traditional Chinese Scams).

Big buying groups. Pushing production costs up then beating on assembly line production. Offering capital support while pulling revenue income. Classic "give with one hand, take with other" US traditional scams.

All we need now is to pay someone to rescue a NZ dignitary from aliens, or that NZ has inherited long lost war debts from germany, if we just send them our bank account number and 1billion USD in transfer fees.

that's how finance normally works. Especially in property syndicates.

Just in property syndicates, people expect to get a return eventually on their investment.
You borrow on your personal house or portfolio.
Buy shares in the business/syndicate. that because the capital.
The corporate entity then takes it's capitalisation to the financiers and seeks a letter of credit based on that capital and the liquidity. (ie uses the borrowed money, to leverage more borrowing.)

Sometimes even buying into leveraged deals/properties.

that's why a few dollars at the investors end, can return a 5 - 12% yield.

But as I have been saying. the property syndicate invests in a property they expect that property to return yield. preferrably 7 - 17%p.a.

But farming doesn't follow that. Their investment and their property is dead money, sitting purely for capital gain which is only realised as security or at sell up. They only use the asset to price fix their sales as low as possible, so the operations business can (barely) survive.

that is a bad thing. have been saying a few times now.

Henry, I am somewhat wary of anything Alison has to say. She is a trained vet running a consultancy that promotes high input farming. Headlands advocates a range of successful farm systems including those that have a lower stocking rate, are simple and well managed, or higher intensity farm systems combining highly skilled management and proven environmental mitigation technologies.

50% of her farmers may 'be in a jam' but she wouldn't confirm that 50% of her farmers will go under. In fact she offered little of really hard evidence other than to say they 'are in a jam'. Well, what would one expect with a $4.50 payout. I would trust Wheeler's stats any day over Alison's. She is maybe concerned about the viability of her business?

Coming nutrient limit setting processes engaged by Councils has the capacity to have almost as much of an effect on individuals farmers as low payout. There will be winners and losers or as one person said to me 'gifters and gainers'.And it will be at every farm in the not too distant future. Its an elephant in the room.

...its not the Council, it's the evironments capacity to cope...

I don't disagree rastus. But while Joe Bloggs Public is fixated on dairy, they don't realise that the impacts this will have, has the potential to affect the non dairy sector (parts of which are relying on being able to retire by selling to dairy) substantially more.

As an aside: Many revolutions in history have started with the peasants. Nutrient setting will likely see farming sector pitched against farming sector. Rural communities will become divided and in time we may see the 'revolution' once more start with the peasants. It won't be directed solely towards environmental constraints, but there will come a 'straw that broke the camels back'. It will likely start because of food - the local lack of or cost of. ;-)

So in effect you will no longer be able to externalise your (ever increasing?) pollution costs ie onto the environment and for others to pay to clean up. I fail to see this as "unfair"

I wasn't referring to only dairy, steven. It's not the dairy farmers who will be the ones to feel the effects the most. Dairy only takes up around 30% of farmed land. Nutrient limits will apply to all.

CO, look at page 4 of this link on Hinds water. This is an area with 30,000 hectares of new irrigated dairy farms coming on stream in the next few years.

http://ecan.govt.nz/publications/Reports/hinds-plains-water-quality-mode...

One can only shake their head at this report Aj. Perhaps there is a silver lining with a $4.50 payout. ;-)

They should have just stopped after this:
The Environmental Scenario assumed that there would be no further intensification from current land
use and that advanced on-farm mitigation (i.e. nutrient management on farms beyond good
management practice) would be able to reduce current nitrogen leaching by 30%. But the results are
still unlikely to meet water quality targets. Managed aquifer recharge (MAR) was included in the
scenario as a means of introducing additional low-nitrate water to dilute the average nitrate
concentrations to acceptable levels in the shallow groundwater and spring-fed waterways.

ahh you mean the consumers who unwilling to fit the bill for a "clean" product.
$4.50 doesn't even get you marginal product.

Every farmer I know of would be happy to sell you environmental excellent products... but it's like that car, house, or computer... you do actually have to pay for the product.

Stephen I had a rellie get involved in a 500 cow farm in the early 2000s. They had reasonable equity. He bailed after a couple of years. He could see there was little profit other than as a capital gain ponzi if you got your timing right. He bought a smaller drystock and lived happily ever after. I have often wondered when looking at it from a drystock perspective how a farm that could no way feed 600 beef cows convert to a dairy that would milk 600 dairy cows....its all about buying it in. Everything from nitrogen to crops to pk to maize. Now those 200 ha farms that run 500 cows at a debt of several mil still has to buy its production. As the lady said $6.70 is their cost of production. Jeez how did we get here! Watching the beef thing go loopy now. one short season of a $6.00 schedule for 4 months and store stock has gone looney. We are a silly bunch.

egads. I'd be curious to see all their numbers to see how they thought that was going to work!

They must not have thought about the handling costs/time.
Really hope they locked in. poor folks.

I gather last years big payout has been well spent on upgrading infrastructure. Same here. The largesse from the glorious beef schedule last spring has at last enabled some long awaited fixits. The deep deep fiscal hole required to keep a farm running will always trump any good returns eh cowboy

My increased payout went into building up the herd which had shrunk in quality animals due to the selling process, my production was lower because of it. On top of that it paid off that old sharemilking debt, and put a relief milker in some some milkings, and covered the filtration and work done chasing sanitiser issues. The extra payout -almost- covered that.

I think you are right belle. Many of the farms you are talking about were not converted to dairy in the past for a reason, that being they were not economic under the old way of farming.

You have a point cowboy, but I am still backing ma n pa gumboot. They have really painted themselves into a corner this time. However they are a particularly cunning species. And many hang together in family groups. This gives them considerable advantages over time. Corporates generally are time poor. Profits must be found each year, chief in charge is usually there only a short time so each year counts. Families look at the 20 to 30 year scenario.

11
up

'Worried', must be the understatement of the year. All those rural bankers around us that just appeared out of the woodwork with their flash 4x4's, now get to vanish back from whence they came.
The problem is costs, so many try to make a good income producing nothing at all, becoming another cost to someone who does.
Like traders in finance they need someone else to make the dollar in the first place, then they can use the tools of the trade and leverage to the moon making small fortune, without ever getting even a little dirt on their hands, well not real dirt.
Perhaps that is what's coming to an end? My rates in 2000 from memory were under $1200, last year I paid moire like $8k including user pay fees. Thats going to have to stop and reverse, lots us are going to have to learn how produce something of value, to make a living.
The days of fuel price being nearly double of Australia and Electricity rip off's could either becoming to an end or putting significant drag on our economy stopping innovation .
How the hell we lose 9 billion dollars of milk exports, ( Lumber has gone the same way) and the government thinks it can just put out spin with no substance and no one will notice. Government spending will have to be cut.
The biggest risk must be foreign buyers all deciding to rush for the exit lounge at once. Asian investors are a notoriously fickle bunch.

http://www.stuff.co.nz/business/farming/agribusiness/68519223/waikato-fa...

You are right on the money Andrew. I call it the "bullshit industry". How many people in this country have jobs with high wages, talking nonsense and producing nothing of real value. You all know who you are.

if they haven't woken up by now, will they ever?

Hope you don't mind Andrew, I'm going to copy your comment in whole and post it on to a discussion regarding "social capital & education" on facebook. My opponent says education is great for the community, and that it makes social capital.... my retort is with the above news... why aren't the educated people crying out all over the country??

Go for your life, cowboy. Just looking at a few graphs should have been enough for most people.

http://blog.yardeni.com/2015/01/the-commodity-super-cycle-wasnt-so.html

With zero growth and no inflation the real cost of money will cripple most businesses who have never seen anything like it in their lifetimes.

A lot of trees being milled around us. They must be getting horrible returns

http://finviz.com/futures_charts.ashx?p=d1&t=LB

A neighbour of mine decided to sell 10 acres of pines that look about 40 years old, but probably missed their last pruning. Decided not to take a fixed quote and it now facing a bill for the job rather than his $30K.

The government has decided it knows better than the market

http://www.nzfoa.org.nz/news/foresty-news/1462-budget-2015-new-afforesta...

People have to be careful when selling of plantation trees....there are a few little sods running around who are very ready to rip people off.

You don't have to prune but you must thin to get a decent return. A lot of farm woodlots pruned at the wrong time and or not thinned leading to diasapointment. Also a lot of sharks out there.

Is there any opinion on risk profiles between suppliers of different milk processing/marketing companies? I'd be particularly interested in comparing Fonterra and Westland (and Tatua notwithstanding its product differentiation), considering Westland still conforms to a cooperative whereas Fonterra is a cooperative in name only and is governed on stock standard Neo liberal corporate principles, similar to SFF, Synlait, OCD.

The suppliers around us that have changed and gone to OCD in the last few years had the banks knocking at their door as they were Fonterra suppliers. Now that they are have sold their shares, I'm guessing their 'risk profile' has changed a little. ;-)

I know of 2 instances (not in the same province) where the young farmer is highly indebted and yet the banks are happy to lend them further for additional land. In one case their accountant counselled ; just because they offer it, doesn't mean it is in your best interests to take it'.

for how long can bankers resist public valuations:

The farms are being purchased on a pro-forma year-one earnings before interest tax depreciation and amortisation multiple of about 6.6 times.
http://www.afr.com/real-estate/dairy-fund-to-snap-up-16m-in-victorian-fa...

http://www.asx.com.au/asxpdf/20150513/pdf/42yjpcbgtfld13.pdf
Anticipating a FY16 base farmgate milk price similar to FY15 of A$6.00/kgms (before bonuses)
• Murray Goulburn have a base forecast FY16 farmgate price at $6.05 1
• Based on expected production volume of over 20 million litres post acquisitions under a full 12 months of production, AHF would expect a farmgate milk price of around A$6.44/kgms after volume and quality bonuses

at some stage a bright risk mgt spark may soon ask a lending gun how come the farmgate price in VIc is $2/kg more than here.

Question:- a serious question for all you up-thread dairying-farming operators

these over-extended people who have got themselves in a deep hole - do they consult business-financial advisors - or do they just look at the headline numbers, listen to the banksters, and then go for it

Do you know any quality business financial advisors who work for free? Who you trust a business consultant who did? The margins are too tight and often the advisors don't have the dairy experience to make practical suggestions... more often than not everything is a constant "catch-up" and you just do the stuff marked "Cost of Doing Business".

Things like putting in palm kernel, I calculated out but then the deliveries from RD1 (Fonterra) were always wrong. I used to get a 8ton PK, with a 2ton crushed/baked cereal blend.
we got 8ton PK (not enough to last the time budgetted), then 12ton (too long for feed out period, and 1 ton went off because it wouldn't fit in storage area, then 10 ton of PK.
But all numbers supplied were kg/$ , not kgDM/$ (weight, not feed value).

I looked at grasses and fodder crops but the "experts" either worked for the supply company, or had no real world references to fall back on - so they couldn't tell me what down times and recovery times were, or how the feed values went in practice (we had issues with the PK during lactation, those that consumed the most PK gave the least milk. eventually drying off. Hence my low herd numbers in the high payout year.

Generally many talk to their accountant but if they only have money to spare, and normally that just doesn't happen.

But primarily they go off cashflow, hence the heavy lean from the "experts" and media on Operating Expenses... which is why you hear that costs should be $2.50 - $3,00 because it doesn't count the land owners share.

the ones that you hear with high inputs and costs up above $6. That's $6 operating (including interest, but not depreciation or tax) They DO high business planners and financial advisors which is why they make such monumentally bad decisions. Their advisors have no skin in the game, so they push for a high volume production, thinking to make slim margins on $6, play a skeleton game at $5.75, and reap the big payouts on the $7 and $8 payouts. The numbers look good, but they don't understand the nature of margin and price sensitivity, and the advisor has no liability.

Q. Do I know any quality business financial consultants?
A. As a matter of fact I do

Q. Do I know any who work for free?
A. As a matter of fact I don't

Q. Do they have any dairy experience
A. As a matter of fact they do

and they are shaking their head in wonderment at some of the content of your comment above and many of the others from others that have preceded it

Farmers aren't really much different to any other sector of NZ communities. Some have higher risk profiles, some take advice and follow it and some take advice and don't take it. Some still believe that you can trust your bank managers advice. Some are young farmers in their 1st/2nd year of farm/herd ownership, some are older farmers who are big on 'empire building'. No 'one box fits all'.

Farmers generally (and advisors) would not have predicted a $4.50 payout for this season, at the beginning of this current season and certainly not last season.

Prior to TAF Fonterra would have been able to give frank and open opinion/discussion at shareholder meetings re payout. This doesn't happen now.

Iconoclast it is not one way or the other and quite why you would think that perplexes me!!

There is often NO way of getting ahead unless you over-extend at some point......so these people are not to be ridiculed but rather should be applauded for having the moose knuckles in the first place!!

As Cowboy has pointed out virtually every year for the last few years some bureaucracy has implemented some programme of compliance that has had enormous cost to the farmer....any budget slack that should have been the farmers has been driven out the back door via policy.

The one thing a farmer can do for their business is to make sure they have a really good accountant. Not the auditor variety but the business advisory type.....a good one of these is worth their weight in gold!!!

The very fact that ppl gamble by "over-extending" should be telling you that they are not making sound business decisions. Something somewhere is at a max value ( or over-priced ) so if there is no "spare" return left to justifying paying more then no one in their right mind should be buying.

In terms of compliance it seems some farmers have been externalising costs ie dumping waste in/on the environment with the expectation that others pay for the clean up. I fail to see how that is fair and reasonable.

Some of the best innovations come from extending oneself! I can guarantee that most of these farmers will find ways of doing more with less!! I think they'll likely look after their IP this time too!!

What is holding the NZ economy back is people with your attitude that dislike risk and want everything in the world to carry some type of guarantee with it and then using the State to implement the safety mechanisms for you....."It is like saying don't climb trees you might fall out" !!

In terms of compliance.....just imagine... you wake up in the morning and in your mail is a letter from some Council (by the way a letter informing you is unlikely as it is up to you as the owner to be informed not for the Council to inform you)and you must e.g. build a dome over your house to prevent any contamination (e.g. you exhale CO2) that your life might have upon anyone else. This dome is going to cost you $100k and you have 6 months to comply. Everyone in your street and the next one in fact everyone in your suburb has the same letter and time-frames.....
You must keep records on your dome and it must be kept clean and your records will be audited from time to time. You were perhaps planning to pay off some mortgage this year or undertake some upgrades/renovations but now you have to comply with this Council request.......these Domes can only be imported and the NZD just went the wrong way.....your done that was going to cost a $100K is now going to cost you much more....and then the sneaky Government thought the Domes should attract a little duty (after all everyone's got to get a cut from this dome)......then there is a very wet season and getting your dome constructed gets delayed......you can't get it signed off and the inspectors are due.....you failed to realise that some new legislation was slipped through at midnight and now the size of your dome has to be twice what you initially thought......and then there are new rules that you must create a carbon sink somehow on your own land.......and then just as your getting on top of everything along comes another Dept of Council and you find you have breached Section blah blah blah of their regulations and you didn't have a Resource Consents .....and the gate down the path squeaks again....good morning it is the building inspector....you did not submit the plans for your dome and pay the appropriate building consents fees....but wait there's more......ka-ching.....all these extra costs your dome is now going to cost in the vicinity of $200K and then just when you thought it could get no worse you get slammed with a bill for each exhale of every member of your family that has not been contained in the dome.......your head pops out of the quagmire.......but then there's an election with a change of Government and the bureaucrats are pushing all sorts past the newby Politicians and saying they have found that the domes are not doing their job and you must double skin the thing!!!!........you then have to prove that it is not your dome that is leaking but there is something wrong with their cheap meters they have been measuring with..........have I mentioned legal and Court action yet?????

Fair and reasonable L’habit ne fait pas le moine”!!

I think Doug Noland is onto it. Those farmers cannot afford the luxury of looking back.

>>>

As an analyst of Bubbles, there’s always a fundamental question: What is the source of the Credit fueling the boom and how stable is it? If the boom is fueled by market-based finance, then there is an inherent stability issue. Years of policy measures to intervene and manipulate markets essentially foster a massive financial scheme – a confidence game. The question then becomes the relative stability or fragility of this scheme. At this point, what are the prospects for an expansion of Credit sufficient to sustain a historic Bubble in market-based finance?

And this gets right to the heart of the matter: Asset-based Credit rests on the ongoing inflation of asset prices. It is, after all, a real challenge to leverage an asset declining in value. As was experienced in 2009, faltering asset markets incite a self-reinforcing contraction of Credit and asset values. More generally, a system comprised largely of market-based finance rests upon ever-rising security market prices.

So how vulnerable is this edifice of market-based finance? Well, how much speculative leverage has accumulated? What is the scope and degree of market mispricing that creates vulnerability to a change in market perceptions? How much has “activist” central bank monetary management distorted market perceptions, prices and financial flows?

http://creditbubblebulletin.blogspot.com/2015/05/my-weekly-commentary-en...

... sheeeeeesh !!!! .... that article has more bubbles in it than an explosion in a soap factory ...

Who cares about farmers? As long as the local council staffers, environmental planners, cultural safety officers, financial planners etc etc, the ones who do all the REAL work, as long as they're still ok there's no problem as far as I can see.

That's maybe the problem. NZ no longer believes farming is the backbone of the economy. We don't need export income we'll live off the ponzi.

Quite right. We don't need farming, or fishing, or forestry, we certainly don't need mining and Auckland doesn't need a port either. All terribly old fashioned nasty dirty dangerous things, so last century.

but Roger this is your beloved Free market in operation.

Well since the RB seems to be aiming to cut the OCR they at least seem to see the problem, I hope.

I guess you must suffer from a comprehension deficit.

Short-end yields initially tried to fall on the announcement but soon returned to previous levels.

The initial response was presumably triggered by the following logic; if the RBNZ can address housing market concerns with these new tools, it will open the door for OCR cuts to address low CPI inflation. We find this logic flawed.

The Bank stated that low interest rates are contributing to two of its three key risks. i.e. to swelling house prices and to the market chasing riskier assets in the search for yield. To us, it would seem inconsistent to then follow up these statements with near-term OCR cuts. Read more

Unlike your blinkers? So nope I undersatnd well enough. I look at how businesses ie the tradeables sector that are our real economy are struggling and may start to go under. Meanwhile gambling ppl who seem to think holding an asset with no work involved is the path to riches dominate our outlook. Simple, start targeting this specific problem area with policies and law to mitigate it rather than hog tie the rest of our economy.

In terms of the other risk, well that is market stupidity. Same thing applies really we have ppl prepared to gamble on taking losses to receive an un-realistic yield rather than do real work. On top of that they are probably gambling that the Govn will bail them out if the worst happens.

Oh and you use a opinion piece from a "bank economist" who is a vested interest to justify your position? yeah right.

Oh and you use a opinion piece from a "bank economist" who is a vested interest to justify your position? yeah right.

You have your own support base. Just the normal game of winners and losers

ANZ economists are now picking that the Reserve Bank will be forced to drop official interest rates as soon as next month - and follow up with a further cut a month later.

The forecast - almost an urging - from the country's biggest bank adds to pressure on the RBNZ ahead of its Financial Stability Report on Wednesday, which is sure to focus on Auckland's raging hot housing market. Read more

Stephen Hulme, do tell us what you would do should you have the reigns? Presumably with the confidence you dismiss current actions you'll have constructive alternatives?

Make me an offer I can't refuse and I will consider your request.

Spoken like a person who spent a life giving advice, not doing 'it'

duplicate post

duplicate post

But the "assets with no work" are correct. I can buy and sit on a "no work" asset, the market is in the timing.

For my tradables, I have to labour and pay. And now I have (0+3700+2422+2422) = $8544 to run my farm and wind everything up and pay the final accountants bill for the next 4 months. Rents, power, communications, etc, and wages. budget from talking to Fonterra = $8544, to run this operation until the final payout "retro" on Oct 20th. because being a tradeable in NZ is such a good risk....

pretty bummed out today - just realised I'm losing 6 months of annual leave and over 60 days of in lieuu days, as well as not being paid this month.

Ahh the things I have to show for all those 10-17 hr days, and constant 7 day working weeks. Thanks Fonterra, I hope you burn.

- -
And go on people keep telling me how I have to pay my "fair" share of taxes. It always sounds so good coming from a person who does 5-6 day weeks, in a nice dry/warm job.

No point giving a dead horse plenty of reign to run.

NZX halts trading in dairy derivatives on information errors over GDT forecast offer

https://nz.finance.yahoo.com/news/nzx-halts-trading-dairy-derivatives-23...?

Fonterra yesterday released a statement yesterday afternoon saying a change in its supply/demand balance led to an increase in its forecast offer volumes over the coming 12 months by 7,530 metric tonnes, of which 6,210 tonnes will occur in the next three months and the remainder coming in the following four months.

Shame those in tax funded sinecures claim to possess knowledge to forecast the price of that which they have absolutely no control over.

That's gonna help keep the price heading up! Last month they upped their season forecast by the equivalent of Synlaits total annual production two months from season end. Is there any more surprises in the cupboard ya reckon.

redcows: Given Synlait processes (according to their website) 550 million litres a year and Fonterra processes 22 billion (according to their website) Synlait's total production is only around 2.5% of Fonterra's yearly intake. It would not be inconceivable for a 2.5% change to Fonterra's intake.

Not at this stage of the season it's not CO. That would require something like a 50% increase in nation wide production for April May. It appeared to come about as they tried to manipulate figures from January onwards and this maybe part of that, the end game being a increase in the auction prices. But oh what a tangled web we weave.....

There's more than one way of skinning the cat, - or playing the game. ;-)

While the media have been making a lot of noise about the 'dry' areas this season, Southland has been behind in production pretty much since December. It was sitting around 7% behind at the end of April.

LIC publish the inflation ajusted payouts as part of the annual dairy statistics which can be found here: http://www.lic.co.nz/lic_Publications.cfm . The inflation adjustment used is the annual cpi rate to the end of June. In recent years the historic payout only goes back 20 years but if you click on the link to the 2002-2003 Dairy Statistics the published figures go all the way back to 1973/74 which can be updated to today by using the Reserve Bank's CPI calculator http://www.rbnz.govt.nz/monetary_policy/inflation_calculator/ .
Because I am a bit of a geek about these things I did all of that and according to my figures there have been 3 years where the payout was lower. 1990/91 was the lowest at $3.93 when calculated to June 2014 and then it was 1986/87 at $4.05 and 1987/88 at $4.39. The only other sub $5 payouts were 2002/03 @ $4.79 1997/98 @ $4.89 and 2005/06 @ $4.90. All these figures include the dividend which I assume will remain at 25 cents making a total payout of $4.75 for 2014/15

Sorry, that comment was supposed to be in reply to cowboy at the top of the page.

can't include the dividend because while a milk provider was entitiled to a share of the value add (early version) they're not guaranteed a share of the dividend. Thanks for that.

are those payouts inflation adjusted? eg the 1990/91 @ $3.93 was 25 years ago.
3% compounding = (1+ 3%) ^ 25 = 2.09 factor.

so a $4.50 payout (assuming average 3% inflation or compounding yield) would be equivalent to
4.50 / 2.09 = $2 .15 per kgMS in 1990 dollars (vs$ 3.93, 3.93 * 2.09 = $8.21 )

They are inflation adjusted. The 1990-91 average payout was $2.42, 1986-87 was $2.03 and 1987-88 was $2.34

Fonterra needs to be held to account for administering an unacceptable temporal payment profile - will heads roll? Never. Family commitment related departures, maybe, with payouts contracting the ex-incumbent to silence. All the while the OBR pre-positioned saver is extending funding and solvency underwriting duties. C'mon fellas time to get real. Hike interest rates or shut the debt funding off in favour of grasping equity partners.

ahh yes but what can the insolvent do about it?

Unless they have produced milk in May - and some of those who had irrigation water cut off possibly won't have, - they won't get anything in June either. I also heard of some farmers drying off in late March - so no May, June or July income for them.

Basically we get paid for milk the 20th month following, so once your last month of production has been paid for there are no further payments until 20 August - assuming milk price doesn't drop any further.

In 35 years of farming this situation hasn't occurred before so hence a bigger than usual impact.

Fonterra: We didn't see it coming

NZ: Yeah right.

McVitty Properties liquidation winds up leaving BNZ with $2.6M shortfall
McVitty, which invested in dairy, dairy support, sheep and beef farms in the Manawatu and Hawkes Bay, was put into receivership in March 2010 when it was unable to make payments on debts including $43 million owed to BNZ.

http://www.nzherald.co.nz/rural-business-agriculture-farming/news/articl...

The Reserve Bank said yesterday that 25 percent of farmers are currently carrying debts above 65 percent of the value of their assets and trading in negative equity, and they would be under pressure in the face of weak dairy prices.

How does one value the return required to fund the risk attached to such endeavours?

Recent gyrations in the so called risk- free return sovereign debt market implies investors are now exposed to return-free risk, hence there is a need to seek upward risk revaluation to offset excessive volatility clearly visible in most traded markets. Read more

I am also wondering if that's farmers = farm owners, or farmers = farm businesses (ie sharemilkers, leasers).

That Read More link doesn't sound promising.
Perhaps one of the bloggers will do a piece for us novice and outsiders to the bonds market?

ASB warns dairy prices likely to stay low for some time

http://www.stuff.co.nz/business/farming/dairy/68586492/asb-warns-dairy-p...

expect all sorts of re arrangements

Maclean said she never expected to be leaving the Purata share register so soon - it could have been 10 years from now - but circumstances had changed. She would remain on the Purata board with Penno until their share sales to Shanghai Pengxin was completed. Shanghai Pengxin's New Zealand Farms chief executive Andy MacLeod said Maclean's growth and spending targets for Purata Farms were different to the "cap-ex" targets and short-term plans.
http://www.stuff.co.nz/business/farming/dairy/68593520/synlait-farms-fou...

putting on the corporate hat, sounds like the board had supported the managing directors plans (all the way up to the approvals), however now those plans are not needed.
wonder if the cap-ex relates to all the/years of work they did on future/forward water rights, or making the scale interest bill - would not be less than when on unlisted.
thought they had coin to burn - rather than chop and change.....Oh I o dont know..

Lots of businesses cope with zilch cash flow for some months. Especially farming. Dairy is the exception. Think cropping, hort, sheep and beef, deer. Really so what if you have no income for 3 months. Welcome to our world. You suck up to the bank and enjoy a large od. Normal for most of us.

but sheep, beef and deer have not had access to the money dairy has in the past decade. Our overdrafts pale into insignificance in comparison.

Just sayin Aj....lotsa other businesses cope just fine with shite cashflow. Its normal for many.

Belle, lotsa other businesses do - but that is the way they have (mostly) always been structured. Most of them also wouldn't have to wait 15mths to be paid out in full for income that had costs incurred almost 15months earlier. That is why OCD suppliers like their payments system. They receive regular settlement payments and final payment two months earlier than Fonterra suppliers. If it was to become the norm then people will adjust. - just like FOnterra suppliers had to adjust when Fonterra decided to change their balance date and drag our final payment out to October.
edit 'October'

Once again lots of businesses have to wait a long time for a return. 15 months? Only part payment To wait for. Great. What about the grape grower. They may hold stock for a few years before sale. Just to get a return on some fruit trees it may be 5 years. A beef cow, if you are keeping the offspring to fatten your turn around can be 5 years. Yes it is what you are used to that matters. But I am pointing out probably What a lot of other business people are thinking. Its all over the news dairy farmers might get bugger all for 3 months. Humph...a lot people will be thinking lucky them . What the hell are they moaning about.

I also have grapes and fruit trees Belle. Difference is fruit trees - the big costs are in the picking, pack housing, so while they are growing to pick stage, the costs are substantially capital costs, not operational. With grapes - I set the price I sell the the wine for - or if contract grown I get paid after picking.

If salary and wage earners were suddenly told by their employers they weren't going to get paid for 3 months, they too would be moaning. That is the comparison to make, not capital/business setup costs against operational. Not 'normal business practice' against contracted terms of supply.

Actually it isn't the farmers that are moaning. All comment I have read is media driven. You of all people I would have thought wouldn't have been taken in by this media beat up. Perhaps it is the banks that everyone is really concerned about, not the farmers - after all according to Reserve Bank the vast majority of farmers are ok. :-)

If you grow onions or pumpkins you dont get paid 12 months of the year. And more often than not each grow season is vastly different in returns. Comparing a business to getting a weekly wage is a cop out. That is not how most businesses operate. Cashflows over 12 months or longer vary considerably for all sorts of businesses snd most would have employees they have to pay. I am thinking from comments from cas ob and cowboy dairy farmers are lost. They see themselves as employees of Fonterra. They are businesses that sell milk And meat. Take your pick...what do you want to be an employee or employer. The real world of a business owner is uncertain cash flow. Blaming who you sell your produce to is lame. I dont buy that its a media beat up. I have seen and heard plenty of comment from farmers themselves. Yes you cowboy. And others in the rural newspapers. Get a grip. A sheep farmer gets a wool cheque and a few lamb cheques. Usually in summer. Winter can be pretty cold for the bank account. And the lamb returns love to go from 6.50 to 4.50 and back again.

This is not sudden. It was clear that as the payout dropped closer to forward payments that there would be no winter payment. The maths was pretty obvious from around november december.I have to say Cas Ob that is one cheeky looking cow from Shutterstock. She looks like shes been reading all the comment and thinks its all hoohah.

Dairy farmer suicides are the highest they have ever been Belle. I sure hope you have nothing to do with Rural Support Trust. I believe in rural communities supporting each other - not slagging each other off. But I guess that's where we have to agree to disagree.

Slagging the industry or not I dont know. What I am doing is pointing out the obvious . 3 months of piss all is nothing compared to what a lot of businesses cope with. That doesnt make me evil. I dont think.

CO, Grapes, what were you thing ( perhaps drinking). Grapes and dairy, where's the link, too much money in the good times?
My vineyard needs to get bigger but as it's losing money now the enthusiasm is just not there. I'm also concerned about corporate dominance of the industry that used to be based around family vineyards.
Some of it's a people thing, you know, those winemakers don't have lot in common with sheep and beef farmers, they turn up wearing pointy shoes and womens trousers, and I think one of them has them on backwards.
They have a look around and then disappear, I have no idea what they are thinking, then some accountant rings and makes a low ball offer. I have the wrong variety for my climate so I need to change sometime, I'm thinking this could be the year, looking at all the new planting worldwide the coming glut could last a while.
I'm more interested in trying to find the right variety without breaking the bank or my back at present.

Nah, Aj. They just happened to be on the lifestyle block when we bought the house. Very small scale and have an arrangement with a niche winemaker who does almost all the work. There's pinot noir, gris and riesling. We enjoy helping to pick and drink the results. If our current arrangement ceases then they can come out. MOTH has got to know a few locals and has yet to hear of anyone (other than perhaps the really big guys) who make any money out of them. It does create a nice view in the autumn. :-) The fruit trees are a true commercial operation - diversifying the family skill base. .

Being involved in and therefore interested in the ag sector I do try to follow these posts, mostly. Some of them I'm not so sure about

I acknowledge Mizz Notaneconomist's urgings that sometimes you have to "have-a-go"

but

One characteristic that comes out of these posts is the perception that many dairy farmers (who are in a hole) are committing the age-old mistake of borrowing-short and investing-long. Borrowing-short is meant in a general sense, of investing long against a variable price which is not long, it is short

Please feel free to correct me if I am wrong

They also had a Co-op that was there to help, smooth out the good times add a little in the bad. That rug got pulled from under them.

Yep, and you only need to go back about 30 years to a time when Big Timber, the big Foresters and Loggers, turned all their truckers into self-employed contractors who went out and purchased expensive Kenworths and Macks and Volvos, investing in their long term future, and about 2 years later the export market froze and a lot of truckers went to the wall

Do you see the parallel?

Big Milk, at the top of the pyramid and the little independent suppliers at the mercy of one Mr Big

I talked to a mate today who works for a big forestry company, he tells me they are losing 250k a day at the moment. So the sharks have moved one up the chain.

If you look at page 4 of this report it's hard to be optimistic about our dairy future.

http://ecan.govt.nz/publications/Reports/hinds-plains-water-quality-mode...

And just how many catchments NZ-wide are in equally deep trouble?

This whole situation has been fuelled by the government's flagship economic policy;

http://www.stuff.co.nz/business/farming/fieldays/8792039/Ambitious-targe...

I personally think the agenda is actually one of capitalist accumulation by dispossession.

But then I've said that many, many times before :-).

The way events are unfolding you can never say it enough.

I think what all this comes down to is the question I asked before. Does NZ think it needs farming? There is nothing new in these reports that wouldn't have been known 10 years ago. So what's changed?
In our area millions of dollars are being spent by our local councils buying farms to set up irrigation of treated town effluent. I was told by someone the other day that was involved in one of these schemes that the waste water can only be sprayed onto the paddocks for a few months of the year, ( the dry months) and what do they have to do with it in the wet months? They dump it in the river. I personally don't have a problem with this, what else can you do? But cut the bullshit when it comes to farming. Town effluent will all ways be dumped in rivers, so an argument that we should encourage tourism, not farming doesn't hold water. maybe we should introduce a toilet tax for tourists to help clean up our rivers?

Farming is critical to NZ, within the context of not damaging the environment.

A lot of the environmental damage done is historical. e.g. Lake Ellesmere is going to take approx 40years to get sorted due to water taking decades to reach it from the foothills. Some of the sediment issues in Lake Rotorua has been dated back 40years and some of the underground water entering it has been dated as 80years old. DDT was banned decades ago but can still show up in soil tests. Land fills/reclamation in Invercargill is now spewing all sorts of contaminants in to the estuary. Dams on rivers are creating various issues in themselves - without farming being added in to the mix. There is a move to have lots of wetlands created on farms - where suitable. A water scientist told me that they are fine in the beginning, but eventually they will start leaching P. So in 50/100 years will current farmers be thanked or cursed for creating wetlands?

For those waterways that have decades of lag the real damage from current practices is yet to show.

double post

Likewise with every industry, tourism, building, the computer industry, etc etc etc every industry has a cost to the environment even the environmental industry.

I dont disagree, hence why I see over-population as the biggest problem.

Tim12 asks - does NZ need farming?

That's a very philosophical question - and should be tested as such

What would your suggestions be if it didn't have farming?
Can you set out all the down-stream consequences and alternatives

and

On the matter of pouring town-produced effluent on to farm-land

A resesearch paper I studied a few years ago was a case study of a program of disposing treated effluent onto farmlands in the USA, not just the treated water but also the solids as soil-improvers as compost after they had been oxygenated and bacterialised and composted and dried etc, etc

Subsequent soil tests of the top-dressed farmland found the levels of (dangerous) heavy-metals exploded

Don't know whether they're still doing it

There is also a USA "statute" (or some sort of state law) that says animals droppings cant pollute the environment, as a result they mass dump chicken droppings on hectares of land which then runs off into the waterways.

Its about do you want to eat, I do and I want to buy NZ produce if I can.

iconoclast - I see the changes dairy is undergoing is not that dissimilar to when subsidies were removed. BAU is a thing of the past but many are too busy/happy 'just being a farmer' to educate themselves about what actually affects their business. - Though one of the biggest 'new costs', it's not just government/local government charges. We had a 'smoothing' of payout - and that hasn't happened for years; markets are changing; Tatua and Westland are the only real co-ops left and they have had the good sense to stay true to their vision. Bankers were trusted advisors, today they are just salesmen/women. There are possibly similar parallels in the Auckland housing market - but they haven't yet hit. Your post of 13.53 is not wrong as isn't Ajs initial reply to it.

There is a number of European senior managers in Fonterra now. They have come from a background of a subsidised dairy industry. Have we lost our way (no 8 wire entrepreneurialship) because we have people at the top that struggle to work in a business that is quite different to that from which they came? Do we have a Board that doesn't have the gonads to pull the plug on Australia, instead of continuing to throw good money after bad? The 'Industry' and government have been pushing the 'we need more production' for years now. But more production doesn't = more profitability. Successive governments cut science funding/research, and NZ Inc has become lazy and and has been only too happy to ride the coat tails of the milk wave instead of looking to spread the load.

Perhaps Fonterra needs to copy OCD's payment system. I hear it results in much better cashflow for suppliers, and they are fully paid up in August for the season, not October as is the case for Fonterra-though whether or not Fonterra could financially survive doing that I'm not sure. ;-)

Just like after subsidies, some fell, some rose and most stayed in the game and it will probably be no different this time.

Interesting comment Cas Ob about the europeaness of the heirachy.

Pay to remember that the farmer shareholders pulled their own damn rug in voting for TAF.

But did the majority? The actual number of farmers who voted for it has never been revealed - only that on a milk solids basis it managed to go through on 66.45%. 66.45% of milk solid votes could suggest that the majority of farms voted against it.

And how were Landcorp's interests treated in that vote? Did they recuse themselves due to a conflict of interest?

http://www.landcorp.co.nz/dairy/

Totally agree on that CO. The owners of this farm voted for TAF on the basis of being certain it was going to pass so they wanted to vote for unity. They never believed in it and still don't. Bloody idiots I think but I wonder how many others acted that stupidly.

Iconoclast - I think most farmers have better skills than that.......

The farmers who are likely to struggle the most are those who have not got themselves established enough......young new entrants or those who have expanded for a variety of reasons.......

A variable product price is only one of the issues.....you can apply all sorts of measures when budgeting from price over ten year period etc.......

The facts are the Government, bureaucrats, industry insiders and a plethora of other external people invariable increase your costs along the way on an annual basis.......none of the people in these groups ever have to consider the financial ramifiactions of their decision making it is up to you as the farmer to deal with and pay the costs.......there is no accountability!!! Some of these external people have grandious ideas and really believe themselves to be leaders they are in fact nothing more than parasites who have embedded themselves deeply into the skin....now you tell me when one is investing long against a variable price which is not long how the hell one can plan for so many unexpected parasites roving the surface?

Then there is the fickle weather which in many ways is easier to plan for than some external person enforcing some new costs.

Hmm be careful reading his work. He's a rabid free marketeer and its always the Fed's/Govn's fault. I do like his site for its research and data though just not the repetitive opinions. If of course its suits your political viewpoint, well enjoy.

If you don't have a free market you have a controlled market......any controls no matter how big or small makes the market a controlled market and that controlled market has consequences far worse than any free-market could ever have.....a free market is naturally allowed to correct itself so the pain is over and done with....the controlled market requires continual surgery which is astronomically expensive.....and that is why future generations will be lumbered and have always been lumbered with past debts.........

If you think of the free market like a vehicle travelling down the road and the hijackers are out in full force.......they don't steal the lot as they want more off your next load.....the road is long and other hijackers slowly join in....all taking a bit, all making demands.....the controlled market is nothing more than kleptomania but people on the inside!!1

I'm not sure what it's got to do with politics? Your economic viewpoint, yes. I realise this guy is trying to sell his books and all that, But the problem with money printing is you have to keep convincing people to take out the loans and keep working. If money gets easier and easier to borrow then why work? Why train?As he said lets just borrow and party. What's the alternative to free market... some form of communism. How did the milk price get over $8.00? demand? really? when you are borrowing money to buy a house at zero percent it doesn't matter if you pay $1 million or $1.2 million for it?

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