ANZ slashes its Fonterra milk price forecast to $3.95; warns farmers will have to wait until 2017/18 for their cash flows to get out of the red

ANZ slashes its Fonterra milk price forecast to $3.95; warns farmers will have to wait until 2017/18 for their cash flows to get out of the red

ANZ's economists have lowered their Fonterra milk price forecasts to $3.95/kg of milk solids (MS) for the current 2015/16 season, and $5.00/kg MS for 2016/17.

This a substantial revision down from the bank's previous forecasts of $4.25 and $5.50-$5.75/kg MS, respectively.

Fonterra itself has a forecast of $4.15 for the current season, although the latest GlobalDairyTrade auction suggests this will come under pressure.

ANZ's forecast for 2015/16 is lower than Westpac's and ASB's, which sit at $4.20/kg MS and $4.10/kg MS, respectively. 

It notes its estimates suggest a cumulative loss of around $1.50/kg MS over the two seasons if its forecasts become reality, or if more cost efficiencies can’t be found over coming months. 

ANZ is the country's biggest rural lender, disclosing dairy exposure of $11.3 billion as of last June. It says:

Price action is poor and European supply dynamics are very bearish at present. There simply appears too much supply for the market to handle despite some encouraging demand signals and the likes of China’s import requirements having improved.

Two important structural shifts in the form of increased European supply and a lower cost of production are dominating. Both these factors are expected to continue to suppress prices and delay expectations for a rebound.

USD dairy prices are weaker and the NZD is more elevated than what we had previously assumed. As such, it’s difficult to maintain a mid-$5/kg MS forecast for 2016/17.

We are encouraged by the steps being taken to drive cost efficiencies and improve productivity amidst a challenging payout backdrop. More of the same will be required over the years ahead. A return to positive cash-flow will now not likely be seen until 2017/18.

The economic knock-on to the dairy sector and broader economy will be substantial. Lower dairy prices are at the forefront of a near 20% fall in New Zealand’s goods terms of trade over 2016; that’s a huge hit to the economy’s purchasing power and enough to knock up to 3 percentage points off GDP growth over two years. 2016/17 will represent the second successive year of a sub-breakeven payout (in terms of pure cash-flow as opposed to the payout). The sector is just under 5% of GDP directly and with the indirect channel close to 10% of GDP. A further step lower in dairy prices is also coming at a time funding costs are on the rise; that’s a nasty mix.

With low international prices, a lower dairy payout and likely pressure on cash-flow until 2017/18 ups the ante on the OCR needing to move lower (the December MPS included a low export price scenario that required 50bps of easing), we are not yet at that juncture. The rest of the economy is generally vibrant / performing well and until we see material signs of a turn we’ll remain in the no change camp.

The New Zealand economy is more than dairy alone, but challenges in the sector need to be respected and closely monitored in terms of the economic flow-on impacts.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Not a big call from ANZ, when you consider that the GDT was down 10% this week, futures are pricing in circa a further fall of 5% (March WMT @ 1750 currently) and then the dollar has rallied 3%+ this week!

Further open interest in the long dated futures are not rising, which indicates that purchasers are not feeling any particular pressure to lock in their prices today.

So risks appear to be very much on the downside in regards a sub 3.95/5.00 price.

Those prices are getting closer and closer to Fonterra's cost of production.

Only have to wait to 2017/8?

Why does the following year have such a significant rebound? wishful thinking? (praying?)

Since 2009 things have gone from bad to worse if slowly and now the news from china our last great hope is not just bad but awful....

and if they devalue?

meanwhile mass jobs losses seem to be on the cards,

100.000's of steel workers will get laid of with no WINZ. (not sure how reliable the site is mind)

Meanwhile in the EU it seems local are throwing rocks and home made explosives at migrants, "The best way it was put came from a German newspaper, the Leipziger Volkszeitung, on Tuesday, in an article that describes 5 separate incidents in two days in which buildings occupied by asylum seekers are targeted with rocks and home-made explosives. " Politically Govns looks to fall.

but the bankers expect within 12 months milk solids will be re-bounding back? really?


don't you mean
어리석은 은행

actually to be more correct - 바보 같은 경제학자 는 더 이해 가 없습니다

ASB have put the six farms of Phillip Woolley in Marlborough up for sale.
Initially they thought they would get their 29 million back, but the report was written over a year ago and they are not so confident today.

Further it's interesting to note that the RBA in a recent meeting actually reviewed their banks (ANZ, Westpac etc) exposure to NZ Dairying. That it is a discussion topic is interesting in itself etc.

If prices do continue to weaken, the banks will have to start to react. Remember they are not State owned and they have to answer to their shareholders plus/also Directors have a fiduciary duty to act in the bank's interest.

So support is not a given and the longer that prices remain weak, the banks will be driven to take action - with all that entails to individuals/country.

Dec 2015

and from there 2011 report

5 Conclusions
The results presented above imply that losses and foreclosure
in lending to the dairy sector will be low in most years.
However, the severe downturn scenario shows the potential
for a very bad multi-year scenario to cause significant losses
for the lending banks. To some degree, this reflects the fact
that borrowers in this industry are all exposed in a similar
and major way to some factors that have shown they can
be volatile (particularly dairy prices). This differs from (for
example) residential lending, where a key risk factor like
unemployment will only affect a small proportion of New
Zealand households at any point in time.
Our analysis is consistent with the discussion in recent
Financial Stability Reports, where we have identified dairy
lending as a potential credit risk factor for the New Zealand
banks. Land prices have fallen significantly but relative to
the scenarios we consider here, the actual cash returns from
dairy farming have remained quite resilient, and interest
rates have fallen substantially. Our model is consistent with
the low rates of foreclosure anecdotally seen to date in dairy
lending, but implies that the outcome could have been
worse if interest rates had not fallen and dairy output prices
had been substantially weaker.

between Nov. - this one
and your one Dec.
they seemed to have adjusted the:
These assumptions imply banks make losses whenever they foreclose on a farm with an LVR above 75 percent. (page 14).
LVR above 90%.

problem solved - all good.

where in the US they extend and pretend. Meanwhile banks seem to be the flavour of the month, not,

One wonders when it comes to the eventual OBR if actually a collapse in banks shares may over-take that in the race to insolvency.

the RBNZ said it “has also requested that the five largest dairy lenders undertake stress tests of their dairy portfolios, and is in discussions with banks to ensure that they are setting aside realistic provisions to reflect the expected rise in problem loans. The stress tests will provide a view of potential losses under similar scenarios and will be reported on in due course,” the RBNZ said in the report.

Key factor to remember is that we are talking about Foreign (Aussie) Banks.

Whilst the local office (NZ Staff) might be saying support XYZ farmer, Head Office will have a different view and more importantly they will instruct NZ Staff on what they will do in regards extending credit lines etc.

The central Credit departments (if anything like the Intl banks I worked for in Asia), will be very harsh on the local Mgmt/Relationship Mgmt teams in regards Credit, for their purpose balance sheet will be everything and will be extremely pushy on what NZ Staff are doing about high risk clients.

Not just banks
Second Mortgages – Syndicated farm investor ‘MyFarm’ has teamed up with German fund manager Aquila to offer a second mortgage financing facility to NZ dairy farmers and will offer wholesale investors the opportunity to be investors in the fund (lenders). If the scheme is wildly successful I guess it is possible that they might extend it to retail investors.

From your experience what example analysis or methodologies would/could credit inspired bankers possibly use in reviewing a nz dairy farm loan book?

Thanks in advance


HONG KONG CAPITALISM: You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with associated general offer so that you get all four cows back, with a tax deduction for keeping five cows. The milk rights of six cows are transferred via a Panamanian intermediary to a Cayman Islands company secretly owned by the majority shareholder, who sells the rights to all seven cows' milk back to the listed company. The annual report says that the company owns eight cows, with an option on one more. Meanwhile, you kill the two cows because the Feng Shui is bad.

ag lending has increase $4b in the last 12 months. most I'm guessing would be to fund cash-flow. banks by capitalising interest, extending credit, and not provisioning losses realistically, are compounding the problem.

with each month that goes by, potential losses increase exponentially.

there must be a few nervous rural lenders around, bank bosses, the rbnz guv. not to mention all the other parties caught up in the ag sector.

i suspect the rbnz is putting a fair bit of pressure on the banks behind the scenes.

apart from stress testing rural portfolios i suspect there is talk about increasing risk weightings in the ag sector. the net effect being that the banks may be required to raise more capital. and put up interest rates sector specific - exactly what farmers dont need.

when the screws are turned the sector may reel

also to compound the problem the rbnz has two other matters to consider. 1. Auckland housing 2. the Australian banks aren't finding it easing going across the ditch either and raising capital hasn't been plain sailing

More like 7 billion although I see some reports quoting 10 bill.

correct $4b over 12 months - $7b over 24 months

Thanks, I was wrong.


So a commodity price falls and ordinary Kiwi's continue to get raped by dominant players like Shell , BP, Mobil Caltex and now Fonterra.

The domestic price of a Litre of Milk remains way higher in Countdwon NZ than even in the same supermarket group in Australia .

Our retail milk price per litre is also higher than India , Malaysia , Phillipines , Mexico , South Africa the UK and most of the US and Eurozone

Our domestic dairy industry is an unfair, crooked, market -colluding , price-fixing , criminal oligopoly

Wait until some clever Aussie realises he can import Aussie Long life milk here for a fraction of what we pay in Supermarkets and turn the whole market upside down .


Image if Kiwi's were more action -orientated and embarked on a Milk boycott ....... now that's the kind of language Fonterra would understand

well put - never mind the TPPA start dealing to the extortion that already exists - interesting too that the graph shows 13 out of 14 profitable years - some greatly so but yet the industry had consistently increased its indebtedness rather than paying down some debt and putting aside for a rainy day - current forecasts for next year are hugely optimistic - so plenty of pain on the horizon

"Our retail milk price per litre is also higher than India, Malaysia........."

But its actually worse than that. The price of New Zealand produced dairy products is cheaper in Thailand, Cambodia and Malaysia, by weight, than they are in NZ and that's after they've been freighted all the way over there. Even in an expensive economy like Hong Kong prices are often less than NZ. I was last in HK 5 months ago.

The odd thing is if you mention this to a NZ dairy farmer they will actually defend why that could possibly be, rather than sitting down and thinking about it and realising someone somewhere is being ripped off.


in the UK we buy a French Brie for £3 ish, sometimes on special for less been as low as £1.99. My wife found the exact same cheese in New World, she was so excited until she saw the price $19.99.


When is mainstream NZ going to wake up and realise its predicament? The economy is heading for a cliff I think. There may be less room than thought for RBNZ rate cuts - NZ might look more like an emerging market needing to hike rates.

The negative feedback around bank losses, dairy losses and retreating house prices could unwind a very long way. All too big to fail but that doesn't mean they won't.

'When is mainstream NZ going to wake up and realise its predicament?'

After it has all collapsed.

The game being played is to keep the proles distracted -with rugby, cooking competitions and home improvement etc. and maintain confidence by downplaying or simply by not reporting what is actually happening. After all, it's mostly about maintaining advertising revenue and doing deals these days.

2016 increasingly looks like the year 'everything changes'.

Well NZ probably still wont realise even when it does all collapse. The problem is the vast majority of New Zealanders are financially inept.

I know a guy in Nelson living in a million dollar house (and that's a lot of house down there), $100k boat in the driveway, brand new 4wd for him and brand new Falcon for her. All freehold. The problem is he gets up every morning and goes to work like a dog for a wage of $42k.

He inherited money, and so rather than investing a good portion of it to produce passive income, he pushes it all into a house and the remainder into toys.

On top of that he then tells me he doesn't understand why there is so much whinging about money these days......he's doin' just fine.

There are so many people like this out there.

Don't worry it's all going to change.Richie is giving financial literacy speeches on be half of Westpac.

I assume he kept some of that inheritance aside for insurance, maintenance and running costs on all of that? 42k a year salary ain't going to cut it trying to hang on to all of that.

"Don't worry,
Be Happy,
Everything is going to be OK ...."

John Key's theme song

Z p "All too big to fail" The "Titanic" was unsinkable. :}

that's the interesting thing, with NZ level of indebtedness and the need to source offshore funds fixed interest may rise in the not to distance future as the providers want a better return for the risk

The dairy boys really could do with some help from a weaker Kiwi to survive. Policy makers have a real dilemma.

The massive deflation of dairy prices is not in my opinion a result of a business cycle, but rather a symptom of a much greater problem that's brewing. Central bank monetary policy is to blame. Too many years of zirp has created problems that have put us into an economic corner from which there will be no easy way out. JK has embraced the dysfunctional world economy, knowing that it can only end badly. It's is no wonder he is no longer welcome at some public events.


Tim, lots of 'important people', have their fingers stuck in this mess, when your fingers are jammed in the mower at least it gets attention but they ani't going down without a fight. Someone has to fund those irrigation schemes, and the thinking now is how to get it onto the taxpayers lap, these guy's are not used to losing.
It's the scale of the debts I find frightening, enough to threaten our banking industry, who would have thunk that if you let the greedy pricks in the financial sector off the chain they would make off like a robbers dog and head to the Caymans to enjoy their tax free gains. Leaving us with this god almighty mess.


There are two conflicting forces at play. What should happen under these circumstances is that we should see a significant downwards revaluation of land prices to reflect market realities and reset the system and in doing so give the next generation of young farmers an opportunity at a realistic entry point. Instead, as Tim points out, the glut of printed money slopping around the globe, interest rates not reflecting risk, lobbying powers of vested interests and our open pass to foreign buyers means that is unlikely to happen and we will keep trying to blow air into the bubble praying for commodity inflation to come to the rescue. It will be an interesting standoff.

Cutting costs are are all very good but will only get you so far. Its a reactive management response. Fonterra also need to be urgently be developing intelligent and creative plans.
Look for much higher value products,
other examples like
A2 milk
Organic milk
High end consumer products
Certified palm kernel free products

We have had years of being just a dumb low value commodity supplier.
When are we going to learn?

CM, Im not saying any of those thing shouldn't happen, infact I couldn't agree more, but land prices need to reflect current reality and the bigger forces at play wont allow that to happen. My main concern is that we will see a disproportionate level of foreign investment in land as that will be the only get out of jail card for the banks. If that happens we will miss the opportunity for the next generation of kiwi farmers to get established under their own account.

Shaggers, the only way I can see it happening is through the tax system. It's nuts for me to be sitting on a farm that in the last 2 years has a value of 40-50 x earnings. I'm expecting it to head above 60x now prices have come off the tops.
Looked at a sheep and beef unit 4000 stk units wanting 5mill, hardly made a living.

Have a friend with 3 boy's only one wants to farm. The farm has a value of over 10 mill, my friend said' if it was 4 mill, they could do something but what the hell do you do it when it's 10 mill' ?

Exactly Aj, there wont be the opportunity for those 3 boys to get a foot in the door that there should be if we don't allow things to reset. I am saying this against my own personal financial interests but our rural communities need the rejuvenation and energy that the next generation brings. I don't think there is the political will to use the tax system but I think tightening up on overseas investment rules (or more rigorous enforcement of existing) would be more achievable. The Lochinvar ruling could prove to be an incredibly significant precedent.

If you look at farm debt, it pretty much follows land values. Farmers borrow as much as the bank will give them to buy a farm regardless of income.
The other problem is the aggregation of land has made many farms to big for Kiwi farmers to afford even if prices were lower.


That why foreign investors with newly minted money need to be excluded as they will fill the void. The 3 farmers sons you alluded to earlier will end up managing a farm for an absentee landlord.

What is money? Debt you never have to pay back?? This is the modern thinking. If all debts had to be repaid tomorrow what value would land have? Is there really much equity left in a massively distorted world

This horizon (2017/18) is just more hopium; how many times has it just been around the corner...

Its been obvious for many, especially outside the glasshouses of belief the economists live in, that the debt fuelled is over and that it's "not if, but when..." .

But whats also important is 'how' this shambles shakes out.

Where do you concentrate your efforts/finances/thoughts to avoid the inevitable asset grab of sinking governments, resource owners and banks. All empires, from local govt through to transnational finance industries have at their core a desire for self-preservation.

Up to now its been interesting to watch fro the sidelines, but now the vortex is going to pull more and more into it. Just watch the hedge funds running for the exits.


Time for a 20-second Special Waitangi Day Souvenir MBA:

If you set out to produce things that almost anyone else can make, such as dairy products, you need to differentiate them. Anyone can make blue jeans – the ones making money are focused on building tangible and intangible value into their brands, not just production volume.

Volume is a good place to introduce the role of Government. Government understands one business word, which is growth. In general, if something shows growth, it is good. If something is growing and is, for some reason, not good, it is best ignored, obscured or falsified. The Government’s interest is in having the majority of voters half asleep for each three-year period. Bureaucrats are concerned to please their paymasters and climb career ladders. The egos of both lead them into saying and believing things that are half-witted. Doubling New Zealand’s agricultural exports by 2025 is a typical Government statement. Stalin and Mao Tse-tung came out with similar edicts.

There is one area in which the Government is actively engaged on your behalf, which is in assisting capital gains. This is known as national economic well-being, and is supported by encouraging inflows of money for your house or your farm. However, if you’re focused on capital gains rather than revenue you’re speculating on others always being willing to cough up more than you did. Only the idiotic among purchasers are willing to engage in this beyond a certain point, and sooner or later you’ll be left holding the parcel.

This leads to the banks. The banks are in competition with you for the money you earn. Their interest is in loading your indebtedness to the maximum you can carry. If you both get it wrong, they’ll be your helpful, knowledgeable, responsive, committed business partners in a sale. Worth remembering too (there’s a handy three-letter prompt: the GFC), the banks are more ruthless and have more powerful friends than anyone you know.

Finally there’s more to life than, as our Prime Minister puts it, being ‘good for business and good for consumers’ - a severely limited way of looking at the world. Maybe we could think about activities that are good for people, good for the environment, for the ecology of the animate and inanimate world, good for our children and grandchildren, good for humanity.

Nice summary Workingman and I agree totally with your ideals and the problems you identify but my question is how would you go about changing the system in the real world?

My approach, Sheep Shagger, is to try to change myself, my own life, what I can influence. The world, in one view, is in a hell of a state, but I believe it's that things are getting better and worse at the same time. In such a confused and seemingly perilous situation, all each of us can do is clarify our own values and put them to work. The system always lags behind determined change, and efforts to shore it up aren't convincing. It's a choice between trying to pull things backwards (which we see in various states and movements), trying to cement the status quo (whether in money printing, the TPPA, etc), and trying to find a way forward.

OK, I follow in principle what you are saying and it makes sense but its a bit vague for a simple sheep farmer, who thinks you have some interesting things to say. I would like to hear some specifics, especially around some govt\industry policy settings that you would like to see implemented....

Fair enough, Sheep Shagger.

In policy formulation, we need to ask what comparable advantages New Zealand has that we can protect, enhance and capitalise on. These are more than just rainfall and an equable climate, on which our current dairy expansion strategy is based. We have - seen as a whole - a relatively uncontaminated and globally admired natural environment. (A landmass almost as large as Japan, with some 4mn people.) There is no bigger story globally than environmental quality and sustainability. We should ensure that our produce captures, reflects and projects New Zealand's natural environmental quality and its continuing sustainability - whether in organics, naturally-grown (a sort of semi-organic I see in store), grass-fed, permaculture, or otherwise. These are premium product values, deserving of research, development and innovation nationally.

In policy implication, this will mean limiting production volumes and geographical expansion for some agri-activities, such as dairying in certain regions or locations, in order to maintain and build value. I don't see this as any different from limiting mining concessions, or restricting certain manufacturing activities, or licensing and managing fishing quotas. In each case, government policy is concerned to build value for the whole, and for the longer term, rather than allowing or encouraging a short-term free-for-all.

These issues lead straight on to the nature of the current and fast growing premium, 21st century, international consumer - from policy to customer strategy. Instead of focusing our agricultural future largely on supplying the relatively uninformed consumer market with basic products, we need to be clear about generational and societal aspirations. The educated, discriminating market has the most money, looks internationally (shares similar values in different domiciles) and its trends are to premium products. This means continually re-establishing our product and brand propositions for this market. The brands that satisfied our parents don't greatly interest us and are irrelevant turn-offs for our children. I do not see - except in a limited number of cases - New Zealand brands that are determinedly focused on particular sectors, and especially premium sectors. Instead of holding a mirror up to well-defined customer values, our brands tend to be generalist - applicable to everyone, and thus to no-one in particular. We stand at the coast and shout, rather than stand in someone else's shoes.

One substantial change we don't seem to have taken on board, a theme running through this above, is that globalisation means that what were previously niche products are now global products. Counter-intuitively, the niche is global in scale. The single small item has a global market. Complex ranges or portfolios less so. What was a small premium product from Milan or somewhere is now a premium product worldwide. There are New Zealand companies, products or brands that have ridden this trend. More need to.

Thanks Workingman, all good stuff.

On the volume front, it will be hard to get agreement on limiting land use change voluntarily although financial viability in the short term and regional council nutrient limits in the medium to long could get to the same ends. Although the govt clearly isn't on that page yet.

One of the challenges in switching from a volume to value mindset seems to me to be the international distribution channels. The traditional supermarket model that we have supplied is under enormous pressure which is good for consumers but a headwind for exporters looking to lift their pricing. The potential to go around them via e commerce exists but our efforts to date from the industries I am familiar with is piecemeal at best.

Sheep Shagger, a conversation about distribution channels, supermarkets, would be a good one to have. Another opportunity will come up. Just two quick points. Sooner or later the international supermarket chains are going to come at New Zealand producers for own-brand products and labelling, and own-brand pricing. Globally they are in a tussle with all producers, manufacturers and brand-owners for ownership of the customer. Their intention is to carry the indispensable brands (those they need for credibility, that they can't easily shake the customer free from, and that are useful for top-end price-setting - the price that they will undercut), plus their own brands, plus a few others. Are New Zealand brands selling into supermarkets ready for this? Are the New Zealand brands indispensible?

You've been involved in SFF discussions here. I was looking at some SFF packaging in the supermarket on the way home. All very cool and corporate and completely passive, with 'grass fed' in small letters as if it was a detail, like a legislative requirement on a pharmaceutical box. It should be huge. Then we should turn the box over and see, in bold, 'Why grass fed?' and then get the competitive assertions, and the whole thing proclaiming 'you only get this quality from SFF'. If they're going the supermarket route, New Zealand brands need to get the supermarkets by the throat as well as the consumer. But enough for now.

You are going to have to find new distribution channels. The big boys are taking over China and China wants to limit suppliers to keep control of quality, which benefits big players

We need to end restrictions on selling direct from the farmer to customer, encourage ways to cut out the middle man.

In regard meat industry, the vast majority of our product is already sold as home brand in British supermarkets, you have to look at the fine print to discover it is from NZ. SFF started selling their consumer meat packs in Tesco's but soon had to trade that strategy away as Tesco wanted to home brand. In return they took more volume but SFF defaulted the opportunity to play the long game to build their brand. In fairness to them if they had of refused they would have lost the contract to another NZ company that would have been lined up at the door. Therein lies the frustration we farmers feel when we are doing our best behind the farmgate only to see this sort of weakness undermine those efforts. Not withstanding the valid points made around organics etc elsewhere in this thread I believe finding new distribution channel as the low hanging fruit in improving profitability.

In fairness to them if they had of refused they would have lost the contract to another NZ company that would have been lined up at the door. Therein lies the frustration we farmers feel when we are doing our best behind the farmgate only to see this sort of weakness undermine those efforts.

Therein lies the reason dairy farmers voted for Fonterra. It's not perfect but better to be united offshore than undercutting each other. There is enough competition with other countries, so we do not need to have a race to the bottom among ourselves.

Exactly CO. I wonder how bad it would be if you had two large co ops getting trading off against each other in this environment? That's why SFF going into foreign control was such a tragedy. If they could have come together with Alliance so at least the co op sector could have been aligned and further co ordination could have evolved out of that but alas.... Our leadership was not bold enough to grasp the opportunities enter Shanghai Maling who of course have the profitability on NZ farmers at the very top of their priorities...!

I understand the supermarket and own brand problems, Sheep Shagger. But a couple of general points. The value chain starts at the producer end. A decent product (which includes tangible qualities and brand intangibles) will always find decent distribution. The fundamental problem in the New Zealand dairying business structure and strategy is its general focus on volumes of low-end, easily replicated, environmentally reckless, undifferentiated, and thus low value, low reputation product.

On the distribution chain, sure there are margins added all the way, but these further chain transactions might (should) also add value that the producer can't. Disintermediation - cutting the others and going direct - can also cancel value: it doesn't always simply return additional value to the producer. (Why, for instance, The Coca-Cola Company, which knows this stuff perhaps as well as anyone, works with local bottling partners, and the supermarket world so efficiently and effectively. There are many such examples.)

Keith Woodford's scheme seems to me to be chasing rainbows. It's all very well to call this or that a billion dollar business, but this is precisely the 'build it and they will come' approach that has brought the industry to its current pass. It is always 'the next big thing' - China, the Middle East, then the web, etc. I would say you'd need to spend close to this amount to begin to get any basic international awareness of the existence of his platform, let alone capture any sort of return. This would be an attempt to mirror Omaha Steaks on a colossal scale.

If the industry has this kind of money to spend, and a sense of humour, let them go for it. But, to my mind, it is this sort of wishful thinking that has given us an industry mired in debt (in which farms have been effectively transferred from New Zealand ownership to that of the banks - certainly out of reach of any new local generation), barely paying its way, and grasping at straws.

When a business or a sector reaches this sort of level of failure (I can't see any other word for it, after $35bn of debt 'investment'), in a world that is awash with money, brimming with people looking to spend it on healthy products and produce (and I know there are also, to our shame, millions who are starving) it is the fundamental strategy that is at fault. And here you hit vested interests, reputations, careers, etc - a refusal to admit there might be a better way. Again, I emphasise, I have no vested interest in the sector, merely in the health and well-being of my country.

We need to encourage small enterprises, after all these multi national companies started small in someones back yard or kitchen. Today so much regulation stops people starting small.
I talked to a friend who has heard of sheep farmers selling lambs in town to friends and family for $150 instead of the $75 in the works, being going on for years near the big cities.If he could kill 10 a week, which would take an afternoon,he could make a reasonable living for his family, but definitely not legal in NZ.
We need to let these little guy's start up and then begin to supply what the customer want's I mean he knows everyone of them. He could then decide to go organic if the demand was there, or change to bigger or smaller lambs and cuts.
Regulation is the friend of big business.

Wholly agree, Andrewj. Take Burt's Bees. Began making candles in 84, earned $US20,000 in year one, branched out into natural personal care products, sold for $US925mn in 07. Co-founder, Burt Shavitz, went back to living on (meaning with) the land and died last year.

There are individuals and small businesses up and down New Zealand with similar initiative, vision and values. This is the nature of true prosperity. Self-serving business/banking/government systems don't deliver it. And, more than that, are engaged in closing off the future for those that might.

workingman, environmentally reckless

This could be said of many industries - including tourism. Fonterra has an environmental code that is part of their conditions of supply. A significant amount of work has been done by dairy farmers towards improving environmental outcomes. Between industry led initiatives and Regional Council policies, much has changed in the last five years. What we don't see in the MSM is genuine acknowledgement that environmental degradation is not solely the fault of dairy farms. e.g.
Sheep and beef farms were the dominant source of nitrogen and phosphorus loads in most catchments. However, loads from dairy farms were disproportionately large, when compared with the amount of land they use.

Your comment that it starts with the producer is correct. The words on every Fonterra dairy supply sign at farm gate states 'It starts here'. ;-)

Fishermen will quite happily catch a trout in the stream on the farm and eat it, but the same can't be said for getting our foreign visitors to go swimming in urban waterways or beaches on the edge of urban development.

With all the increase in Fonterra's milk take in the last year going in to value added product, perhaps they are finally starting to 'turn the wheel'. One lives in hope.

Yes, CO, I take your points. The human footprint can be, and is often, environmentally damaging in its many fields of action.

But I can't see an ecology of grass and flies, and wasting soils and waterways - whatever the sector - as anything but environmentally reckless.

On your other comment, re your cherry orchard, I think you'll find permaculture interesting. We want to put it into practice in some opportunity.

Innovative way of reporting farm debt - report the asset value too.

Workingman, Im not sure I agree with your critique of Woodfords ideas as "chasing rainbows". Food retailing is increasingly online in big mega cities, the likes of Amazon are now involved. Obviously a NZ inc approach would need to build up from an achievable base and require some up front investment. The point being we have to do something different or accept get an increasingly shrinking slice of the pie from the existing model. There is some really interesting discussion on this thread but none of it immediate silver bullet stuff. In reality it will be a case of attacking these problems from a number of fronts.

SS, Omaha Steaks is a parallel model to Woodford's suggested national platform, and worth looking at (maybe you already know them). Around a century old, grew its reputation through national then international mail order, and through enlarging product categories, to a t/o now of some $US500mn. My point is that establishing such a platform afresh, globally for NZ Inc, in today's online environment is an investment gamble requiring very deep pockets and considerable time spending. It may be - may be - that the more effective service platform is already there via Amazon etc, as many others with their own online presence are finding. Does the industry want to sell product to discerning customers, or build, meaning somehow debt-fund, new business infrastructure to somehow prop up the existing model? Its strategic thinking, business management and investment record so far isn't that persuasive. Instead of dreaming big, bigger, biggest, the agri-business sector as a whole needs to fix its basic product strategies..

workingman.... sounds like there might be a spiritual side to you... ??

I think you are onto it ... in that ...." change myself, my own life, what I can influence.. "

I also see that the world is both better and worse at the same time... duality.

Just finished reading a book about the boom bust history of USA......
history really does repeat, in its own way.... corruption and vested interests have always been there... criminality in finance and the political process.... its always been there..
land booms/busts driven by rampant credit growth... its always been there..

It all goes round and round, Roelof. Up to us to try to make sense of things, and make better what seems to need improvement, as it comes round our way.

This is no way to run a ballroom

Labor senator Sam Dastyari has warned there is something "fundamentally wrong and rotten" with Australia's entire political system, claiming there are 10 huge companies with so much power and influence they have killed proper democratic process at the federal level in this country.
He then claimed there are 10 companies that wield the most incredible amount of power in Australia, to the point where it has stifled proper democratic and economic progress.

"Four banks, and we all know who they are – the Commonwealth Bank, NAB, Westpac, and ANZ – three big mining companies, in Rio Tinto, BHP Billiton, and Fortescue Metals, you've got your two big grocery chains, and you've got your big telco, which is Telstra," Mr Dastyari said.

They have "unprecedented concentration of corporate influence" in Australia, he said.

"The entire political debate has become so dominated by the interests that they're pushing, and the agenda that they're pushing. And [we've] ended up with this complete crowding out of a proper political discourse in this country because there is one sectional interest that is so much louder than every other voice out there combined."

This is from Otterwood Capital Management, I don't have a link, it's a weekly email service.

Long-time readers know that I believe credit (bond market) leads the stock market. During this bounce, credit has deteriorated. See investment grade spreads (BBB spreads) below. When this line goes up, it means the markets are worried and therefore demand a higher rate of interest on riskier credits. This is showing that spreads on even the better credits (investment grade) are blowing out and have risen considerably since the stock markets bottomed on January 20th. This is not a good sign and is confirmation that there is significant stress in the system.
This is a bear market bounce that will fail.For the longest while, stress in the system has been focused on oil and China. As we wrote in our daily blog this week (see here), that focus has quickly changed to financials. Deutsche Bank in Germany and Credit Suisse in Switzerland are in serious trouble. See below.
Their problems could be Glencore exposure (see here), could be Petrobras or any number of oil or mining companies currently on life support. No one really knows.
The market is looking for a whale though, a large iconic bankruptcy and it is now laser-focused on European financials. Banks in the US and Canada will not go unscathed when this happens. Credit is deteriorating rapidly. Now is not the time to play for a bounce. In the funds we manage we are staying conservative and focusing on protecting capital.

The OMO version of the RRP may not be so popular, but the autonomous foreign version very much is - particularly of late. While accounted for as a drain on bank reserves and SOMA collateral, the Fed operates this reverse repo account as an as-needed accommodation to unknown foreign entities. These might be other central banks but could be foreign commercial banks. Straight away, the optimistic account of the OMO RRP is unsettled as UST collateral for whatever US$ funding in eurodollars clearly isn't "normalized" at all. Someone outside the US is in need of collateral (derivative resetting?).

The foreign RRP balance spiked $10 billion just this week, suggesting some great degree of difficulty in funding markets. At the same time, US$ repo markets have seen persistently higher repo rates (above the 50 bps "ceiling" the Fed had hoped would be established by its faithful corridor operations) but also a curious surge in MBS repo volume. The 7-day average of daily par volume spiked to the highest usage since October 2012 and the first throes of QE3.

Andrewj, readers might wish to observe these releases here:

1. Factors Affecting Reserve Balances of Depository Institutions (continued)
Reverse repurchase agreements (12) 321,629 + 27,476 + 36,301 292,271
Foreign official and international accounts 232,150 + 12,951 + 109,947 229,810
Others 89,478 + 14,524 - 73,648 62,461

Organic milk powder is $14,000 per ton. Ordinary milk powder is $2,700 per ton. I wonder what NZ should do? I wonder what we should do?

What's the quandary, Learn to Social? We'll keep looking ahead for that expected, charted, promised, spread-sheeted, planned for, fully-financed, always coming, upturn in the ordinary stuff.

Anything than admit the environmentally-minded (greenies, traitors, tree huggers, hippies, our children, etc) might have a point. And anything to avoid derailing the Government, MPI, Fonterra, so called agri-business steam engine.

It's all about hanging in there, talking to the banks, keeping your confidence up, just getting through this brief cyclical downturn. It was good in the old days. You'll see, we'll make them come again.

Lotus 1 2 and 3 has much to answer for.

LOL - that's going back a while- I remember the bank moving from Lotus to Excel and the marvel of live feeding the exchange prices into the eurodollar strip and note/ bond price CTD/basis programs etc.

environmentally-minded (greenies, traitors, tree huggers, hippies, our children)

What to do about it

One day the green-movement will wake up and realise they have the power to put their money where there mouth is instead of passive opposition

If they can collectively crowd-fund the purchase of a beach in abel-tasman what could they do if they really put their mind to it

Collectively they have the power to think big and show the world how it can be done

iconoclast, the environmentally aware world is already putting its money where its mouth is. It's far beyond passive opposition. Informed, discriminating, wealthier consumers globally are choosing not to buy pesticide-ridden, insecticide-coated, environmentally damaging, commodity products. And they're happy to pay a considerable premium for the purchase. There's no long-term future in business or in life in poisoning the environment and poisoning ourselves - whatever our agri-business steamroller believes.

except my vineyard where I just get the same as everybody else. Probably should do more research into marketing options.

There definitely is a growing niche market for premium / organic products, but that's too hard for big, bloated, bureaucratic organisations like Fonterra etc to consider as it doesnt scale easily and cheaply.

That's passive exercising of choice
It's like being at the back end of the bus - what do you do when the bus doesn't arrive

I'm talking about owning the bus

Have you never discovered a product in a supermarket that suits your metabolism - the nutrition panel tells you it's organic, pesticide free, no preservatives etc - you choose to spend your consumer dollar buying the product - until one day the supermarket chooses to no longer stock it

When it goes mainstream with volumes large enough fit, the prices will go mainstream as well. High prices can only be paid by the very high-end middle class. Not sure if that group is growing or not (very Herne Bay).

Look over the horizon, David. The very high-end middle class extends far beyond Herne Bay. It is, rightly or wrongly, where the wealth is concentrated globally. And these are the opinion-formers and lifestyle leaders internationally too. Trends start there and move outwards. What these people want, buy and do becomes, with small adjustment, the norm of the larger future market - whether in SUVs, Apple thingymajigs or organics.

Hmm dont think its that elite myself.

Elite to themselves, Steven. Elite to their followers. There's no need to join in admiration. But if you're in business, they're important to understand. Few businesses strategies recommend ignoring concentrations of money and influence.

I ment in terms of purchasing, ie we tend to buy organic products such as milk and pay that premium and Im certainly not anywhere near an elite income living in Herne Bay.

My girlfriend just got news her team will be disestablished at NZTE.I was told 90 positions are effected.I wonder how much funding they indirectly received from Fonterra and if the screws are being put on by government. Many people other than farmers are also going to be effected by this.

What will happen to housing if the Chinese don't return and the job losses become more noticeable. 900 at Fonterra, how many at nzte? who else?

Since 2009 ppl such as your GF have been 'quietly" got rid of. All the Govn has to do is not fund them any more $s and put like minded "leaders" into place and jobs leech away via "re-organisations"

In keeping with the theme of the thread you would think that NZTE should be being massively ramped up not getting wound down.

The National party is being anal about balancing the budget and I suspect getting into position on offing a tax cut bribe next year. Anything then that puts that at risk is not tolerated IMHO.

Therein lies the problem in getting some of the themes explored in this thread implemented. Politics is increasingly dominated by soundbites and spin at the expense of considered long term policy. Best slogan wins. Sad and somewhat infuriating.

Elders is advertising for cows $1100 net for export to China. I think milk globally is now just another commodity in surplus, given that in many countries herds live in warehouses these days and can be set-up anywhere, including China (and we are dumb enough to help them do that).......Our only hope is grass-fed high quality organic milk and its processed products, ie produce something countries like China cannot do with any real credibility. As for butter, there is a developing trend of a massive increase in consumption in the US, as consumers turn from margarine and "dairy spreads" now that the latter's health benefits are becoming increasingly discredited. Fonterra should be riding the wave of their consumers preferences, and marketing butter as the only healthy choice to really ramp up global butter consumption. Just read any of Dr. Uffe Ravnskov's books to get up to speed on the diet/heart/cholesterol myth. Fonterra needs to go all-in on organic milk products, including developing intensive support for farmers to switch over.

The best bet would be if the whole country went organic, then the markets know that the chemicals they worry about cannot even be purchased here.

All good in theory Aj but as you will know organic farming is a very difficult exercise and one that is not without considerable biological complexity to be done effectively. Anyone who has witnessed severe worm infections in livestock for example knows its not something that can be done cold turkey without comprehensive changes in farming practices.

I realise, I think we would need to have some basic drenches available but all the 2-4-D's etc can go.
I have changed my stocking rate and almost eliminated my worm burden.
Either way it looks like the worlds financial problems re catching up with us and we will have other more pressing issues to face.

In NZ? There's a lot of good farmers I'm sure. But the whole nudge nudge wink wink when some rogue ones bought the rabbit calicivirus in here, and the steady trickle of bad news stories about animal welfare would suggest this would be a massive challenge. It would be great to see, but the risk (such as demonstrated by the melamine scandal) is that a rogue element being found out is massively damaging to the entire brand.

I think I have to go with the rabbit calcivirus as being good. We are over run with rabbits here. It takes a concentrated effort every year to get the numbers back. A few times over the years the effort has gone undone. Luckily the virus has gone through. It is in them now. Doing a gd job. I have seen them in Kaingaroa 30 years ago. There seems to be something about the central plateau they like. Kaingaroa was nightmarish. Millions. One 1080 drop later. All gone. Rather the virus I think. At least the dogs are safe.

I agree Belle. At present the powers that be are looking in to bringing in another more virulent strain of calcivirus. We have, at home, what we call two 'rabbit paddocks' as neighbours - bare land, absentee owners. They are around 3 or 4 ha each. It is nothing to see 100 rabbits above ground in each paddock and the locals say for every 10 you see there are 70 you don't see. ORC defines a severe rabbit problem as 10rabbits/ha seen.3years ago ORC did a massive poisoning campaign along the lake - we never saw a rabbit for 3months. This year down here it has been an ideal breeding season for them so they are on the rise again. They are a threat to horticulture, viticulture as well as farming.

I have always associated rabbits with over grazing but even up here in certain years I can get a few too many. The local boy's love it as does my dog.
I worked down south and the death rate in rabbits if the grass was longer was put down to pneumonia when the grass was wet. Farmers with lower stocking appeared to have less rabbits, farmers that pushed things in a drought year let the rabbits in and get established.
My friend in Nth Canterbury has a real problem, not helped by the dry.

And isnt it 7 rabbits to 1 sheep. My brother just asked me for a specimen. Apparently where he is they have got away again. Central Otago. Bit worried now bout the 70 I dont see...

Grass up to our armpits here Aj. I havent looked this year, but the last time I did the rabbits had all the features of calcivirus. It was pretty disgusting. We are surrounded by native. Usually good rainfall. Our neighbours arent so bothered by them.

Calci came through here at Christmas time. It appears pretty regular about the same week each year. I have a ton of feed but still dry, I do live in the driest valley in the Nth Island but great in winter.

Aj some summers when it is especially hot and dry we will find dead rabbits - we have been told it is the virus that appears to affect the rabbits in unusually hot/dry conditions, but that overall it's effects here are somewhat diminished hence the look in to a new strain.

Good to hear you and Belle have good feed stocks. :-) Just got back from the farm and the feed down there has changed to being on a tipping point 3 weeks ago to being abundant and looking to make hay in order to keep grass quality up.

We are in Central Otago surrounded by viticulture and horticulture Belle, so can't rely on the sheep method. ;-)

Friend on a 50 acre block said between bullets and a dog 420 rabbits have been killed on their block since 1 Jan this year and there are still more rabbits coming all the time.

I suspect that our government has closed the one escape door available to us. Ultimately, the only rational NZ response, leading to a prosperous and healthy future, is for New Zealand to become completely organic. However, TPP probably commits us to a future of ill health and poverty? God save us

Shaggers this is what worries me at present, where do you think prices will go?

Aj, my contacts in the companies tell me that they cant see lamb improving much in the next 2 to 3 years given the weak global economy. The schedule dropped 30c/kg for next week now it is post the easter boat. A good 17.5/18.5kg lamb now $75-80 in the south, much lower than the $100 promised by Alliance not long before xmas. There is more optimism for beef but as your charts allude US supply is picking up and corn prices are low limiting any upside although with Aussie supply well back helping to balance. The commodity game is for mugs that is why I am interested in some of the thinking in this thread, we just have to do things differently or we are going nowhere.

Farming organically is an easy thing to say. Oh why dont you go organic? I get asked this question every now and then. Like Shaggers I immediately picture a wormy lamb or calf. Its not so easy to do. So you have an animal with a simple infection....woody tongue or navel ill. Do you bring out the gun or the antibiotic. I have little use for the stuff but when I need it it saves a lot of suffering. Being in the north island we tend to have more weed problems. Goats can do a good job but they cant keep up with all the thistles and ragwort. And gorse....the whole country would become a patch of gorse interspersed with native and pine forest. Then there is the cropping. How can you hope to crop without chemical. Production would fall off a cliff. Anyone suggesting thats not a bad thing should go and take a good look at our hospitals. Then go check out a third world countrys hospitals. Then get sick. All the hospitals I have seen here lately have been rebuilt in the last 5 years. Its unbelievable how lucky we are. The tradeoff is industrial farming. It pays for our living standards. Go organic and the return might be better...might...but production in most cases will be substantially worse. Then how do we pay our bills?

We pay our bills by upping the value of each unit of production instead of increasing the production !

Organic food costs more because producing it requires more skill, knowledge and effort. We always pay more for quality- like real vanilla bean vs fake vanilla essence. Real leather shoes vs plastic shoes. If we had to go organic (we do have to!!!), we would collectively figure it out to fairly quickly. Every problem is addressed on youtube.

it requires more skill, knowledge and effort.

Organics require different (not more) skills, different (not more) knowledge and usually more physical labour.

A thought, CO. Stefan Sebkowiac, Miracle Farms, Quebec, gave an interesting series of presentations, 'Beyond Organic', through the country last year. In his view, organics are not the whole answer. He's a biologist who moved a commercial, monoculture apple orchard to certified organic status, and found he required just as many sprays and was just as vulnerable to pests and diseases. Wanting to reduce his sprays etc, he has moved to a polyculture or permaculture regime, a commercial 'food forest', and hasn't looked back. Worth checking out.

Thanks, workingman. We are developing a cherry orchard so are keen to look at options outside the usual horticulture box.

Thanks from me as well, fascinating concept.

This is what I am doing- turning my front and back yards into a food forest. It is fun and interesting. Robert Hart is an inspiration.

Robert Hart (RIP) is among the first to create a food forest garden.
His teachings have been a inspiration to all those who are interested in the idea of food forests and Permaculture.
This short video is a rare interview with Robert Hart, who passes away in 2000.

"No epicure dish served at the most expensive restaurant can compare with fresh fruit, organically grown without chemicals, picked from one's own garden."
(Robert Hart, Horticulturist, Permaculture pioneer -- 1913 - 2000)

Yes, great video, Learn to Social.

And to all those that still believe organic is the only answer try it in your own life before demanding us farmers do it. Got appendicitis...too bad. Kids with ear infection. Too bad. Get the gun.

you see... we don't eat kids so they can be as full of drugs as we want. Beef on the other end...

Yes, we need penicillin (etc) and our lives would be measurably different without it. But my neighbours drench every three weeks whether the stock need it or not ! Halve our stocking rates, get away from chemical farming and over time you will see the health or the ecosystem improve. Our own health is no different. Our grandparents treated 90% of family health issues at home, reserving the doctor for the most desperate of situations. Now we go to the doctor for a cold remedy instead out staying in bed for a few days and taking broth !! Haha,simplistic maybe but as individuals we need to accept more responsibility not less, make the hard decisions not the easy ones and be prepared to leave something to the next generations rather than 'have it all now' !

Colt 45 are you are farmer and if so are you organic?

Are you saying your neighbours drench with antibiotics every 3 weeks all year round? What are they drenching for?

Halve our stocking rates is such a sweeping statement and meaningless unless you also state what stocking rates should be. Stocking rates in our dairy farm area vary from 3.01 to 2.5cows/ha.

In my experience the parents in the 25-35 age group that I know all prefer to use natural/homeopathic remedies where they can. There is a growing awareness of alternative options.

No one appears to want to see improvements 'over time'. You just have to look at water quality and the very long lag times in some water ways. People want to see it sorted 'now' - even if it is either unrealistic or impossible. Improvement and mitigation that will result in improvement over time are not acceptable/acknowledged by the masses.

Yes, but not certified.

No, lambs drenched for worms during Spring and Summer.

The comment regarding stocking rate relates to the inability to carry such high stocking rates (generally) without the use of huge quantities of N, animal health drugs, irrigation and off farm feed support. I believe the farming system needs to be sustainable without the use of huge inputs to support such high stocking rates, producing a commodity (dairy) that no one wants.

Yes, there is a huge swing to natural (long forgotten) natural remedies, thank heavens !

Healing over time (of land and beast) is a reality. It takes time to heal an infected host. After all, it's the quick fix drug therapy that has got us into this mess !

Agree, we need change now but results will take time !

Colt45, I had a friend who worked for the Colonial office in East Africa where they had a lot of parasite problems. They trailed high tannin plants to see how they would go killing intestinal worms. The plant that was most successful was tobacco, it killed almost all the worms. I always thought, as Tobacco grows so well here, how easy it would be to grow some and store it for use when worm burdens are high. Almost all the high tannin plants they tried worked to varying degrees.
I am as close to organic as I can be, I do use white drenches but only when I need to, I can often get around drenches by stocking less and feeding better.
My Vineyard is completely 100% organic but not certified as that is expensive for a small block and they don't pay more for organic grapes. I find the vineyard super easy to run as an organic block. Sometimes it's nerve racking and I lost my crop just the once but mostly it's been a breeze.

When you look for Tobacco plants they have a huge variation in nicotine levels, I don't know which variety worked best.

Poplar trees could work .

A view on organic wines:

When MOTH uses copper spray for the 2nd time in the garden I remind him it kills earth worms - he reminds me it's organic. ;-)

That's another reason I'm not registered. I have sprayed once this year and everything is clean. Used HML32 which is an organic Bicarbonate of Soda based spray seems to work.
My neighbour years ago had an organic apple orchard and the trees were covered in Copper and Sulphur , they actually changed colour, there were such good alternatives that were better for the environment like the copper alternatives.

Thanks Aj. I will certainly look in to it.


We use Flowers of Sulphur on our cattle. The calves have not had my drenches at all, rather the Suplhur every month ( a handful or two rubbed down the full length of the backbone) and Apple Cider Vinegar in the water troughs. They are as healthy as, shiney coats, no coughs etc etc. They get a regular shift, copper salt blocks, crushed barley, Lucerne in a feeder and molasses if I'm feeling soft. They charge around the paddock with their tails up and I can hardly get the bike out the gate ! We have used homoeopathic remedies in the past, with good results. Adult stock are the same.

I think your are right, clean pastures, good quality feed etc.

How many farmers and their families are taken from us prematurely because of being poisoned/sickened/driven mad by agriculture chemicals?

The thing is we will be going organic, or going elsewhere.
We will have to stop dumping cadmium onto our soils.
We will have to do without antibiotics-that race is almost over.
We will have to stop using the atmosphere as a methane sewer.
We will need to put trees (shelter, CO2 sequestration, bio-diversity) back onto the farms.
We will have to reduce the externalities of water pollution.
We will need to take much better care with our water budgets.
We do live on a finite planet, with an endpoint to economically recoverable fertiliser inputs.
We will have to stop looking at industry funded industrial farming research, and instead look at the plentiful examples of alternative land management techniques.

For too long we have looked to "scientifically proven" as the ultimate decider of our way of life. I think nature, in so many ways, is discrediting this narrow focus. It has to work in the real world, not just the lab or the laboratory farm.

I dont necessarily disagree with the comments here. But its all so easy to condemn the farmer as chemical mad. How much are you guys prepared to pay for your beef? Do you always buy the eggs that cost $8 dollars a dozen or when you are feeling a bit tight chuck a dozen caged in the trolley at $3.50. Do you buy freedom farms bacon every single time or every now n then go Hellers. Or Pams ;-( Do you go to the markets and look at those beautiful big fresh veges and buy up large, paying cash....then wonder why they are so large and where did that cash just go....and milk oh for the organic non homogenised. Yum. But does the standard countdown model hit the basket instead?

More the question is how much do YOU get paid for your beef? How many fingers in the unearned income pie before it reaches me?

Yes I buy the more expensive organic everytime because I am thinking of the cost not to. My health and my longevity.

If you animals are sick, then I will get sick eating them. if your land is sick, then I will get sick eating produce from it. Vitruvious wrote about this 2000 years ago.

scarfie - fair comments. However on this site and many others it is only ever the farmer that is criticized - greedy, wealthy etc etc. We aren't seeing the consumer railing against the supermarkets or middle men. You can afford to buy organic, but I don't believe that the average family in NZ can afford to. Unless wages go up to compensate for the higher cost of food.

IMO humans are constantly evolving and that they, like other species in nature, do adapt to some changes in environmental conditions.

We buy the Anchor lightproof bottled milk - have to buy it at the BP station as the only supermarket in town doesn't stock it. They say their customer base is young families who like to buy cheap milk so they don't stock stock Anchor milk other than Zero. In the last 10 years we have lived in 3 different towns - none of the Pak n Save supermarkets sell Anchor milk. Some New Worlds do and some don't.I believe that the majority of NZ consumers buy on price but that there is a reasonably large group - maybe 20-25%, that can afford to buy without a concern for price. In my own family our kids buy budget/home brand milk as they buy on price.

I am not coming down no farmers as such, just the general system in which we operate. I have certainly been fooled over the years even though generally more open minded and aware than the average. So although I am provocative at times because I perceive the need to shock people, I am forgiving on the other hand.

Don't get me wrong on the diet either, I would like to have a greater content of organic food. I have two farms within reasonable distance (20 & 40 mins drive) that I source organic milk from. I tend to get 30L at a time to save on travel. Eggs are a no brainer to me, such a small part of the overall budget. Because I keep myself fit I have a high calorific and protein requirement (I am 90kg), so I sill shop wisely.

Not sure if these guys sell direct, but I have seen it in coundown.

I see health as more critical than most. The mistake I see is that most believe an absence of illness is a sign of health.

Countdown sells Lewis Road for $4.67/l according to their website. Organic Farming Hub, which supplies milk for Lewis Rd pays their suppliers approx $7kg/ms. Based on composition of our farm milk 1kg = approx 10litres of milk. So the farmer earns approx $7 gross for 10 litres and Countdown sells 10 litres for $46.70.

If we use Anchor Blue Top as a comparison - milk price is currently $4.15kgms = approx 10 litres.
Countdown sells it for $2.08/l. Farmer gets $4.15 Countdown sells it for $20.80.

If Lewis Rd and Meadow Fresh Organics Blue Milk nutritional values are compared
Lewis Rd contains per 100/ml
More saturated fat 2.9 v 2.1
More protein 3.2 v 3.1
Less sugar 4.6 v 4.7
More salt 46 v 40
Less calcium 112 v 115

I would be interested to know from anyone who buys Lewis Rd if they notice a difference between Meadow Fresh organic and Lewis Rd as the former is considerably cheaper on the Countdown website.

Completely agree; its impossible to move too far ahead of the pack especially because the prices being set are ignoring the total cost of production.
As an example, if I recall correctly about 15% of horticultural land and 11% of dairy land in the Waikato exceed NZ max cadmium guidelines. Now the true cost of produce from that land should contain a provision for soil de-contamination. The price we pay doesn't. Thats the difference thats going to catch us in the end.

Instead of mending our ways, we took away the contamination classification, but that didn't get rid of the cadmium. Our superphosphate fertilisers apparently contain 5-6 times the cadmium residues of the comparable ones in the US. Stupid and short-sighted.

Another example is anti-biotic use in feedlots in the US; loss of effectiveness for short-term economic benefits. Means a poorly conceived factory farming system puts out cheaper (price) produce at a greater expense (real cost) than it should. It therefore externalises its costs and competes unfairly against more sustainable methods.

Unfortunately there so often needs to be a crisis before most of us change our ways.

""Trucost assessed more than 100 direct environmental impacts (see Appendix 4) and condensed them into six EKPIs to cover the major categories of unpriced natural capital consumption: water use, greenhouse gas (GHG) emissions, waste, air pollution, land and water pollution, and land use. "


"Means a poorly conceived factory farming system puts out cheaper (price) produce at a greater expense (real cost) than it should. It therefore externalises its costs and competes unfairly against more sustainable methods."

Absolutely right !!! But it doesn't service much debt and most have been succoured into a debt burden that deprives them of the ability to even consider a different approach. It will all end in tears!

Interestingly Russia has seen the global opportunity for organic produce, this was reported in December 2015:

An organic dawn
As the Kremlin has rejected the idea of GMO food production, now a mainstay of American agriculture, Russia could become the world’s principal supplier of high-quality organic food. Meaning there is potential to dominate the “high-end” market in both the West and in other wealthy countries - like China and the Middle Eastern states.

"We are not only able to feed ourselves taking into account our lands, water resources – Russia is able to become the largest world supplier of healthy, ecologically clean and high-quality food which the Western producers have long lost, especially given the fact that demand for such products in the world market is steadily growing," said Putin.

And this:

Russia has also rejected GMO food and farming.

Actually, they seem to show a large degree of common sense on various issues.

ANZ said in recent agriculture
focus they thought the usd/cny would rise to 6.7 this year,up roughly 6 percent recently causing some panic,but mark Hart in two articles on real vision and kyle bass on cnbc site a 40 to 50 percent rise which leaves the usd/cny rate at 8.4 with ripple effects across other currencies as well,this would effect china's ability to import goods like milk and meat,but make their exports more competitive.These guys are good,siting why China will devalue,and why the Chinese will run out of reserves in the next 7months or so.I don't no what this will do to milk prices,but I suspect some in banking industry haven't factored all this in and could get some Hugh bank writ offs over the next 5 years,way out side norm,another possible effect could be land devaluation in order of 40 percent as a possibility as land gets back to economic return.One cannot no the future,with all its variables,but one should try and see possible risks and take appropriate action were possible.I wouldn't like to be on other side of trade with bass and Hart.

It's clear that we have a pretty switched-on group of commentators.
Although it has taken some time (many months) of ignoring the "rabbit hiding in the hat," this post has finally encouraged so many of the "thinkers" to finally, publicly ' extract the rabbit from the hat.'
Following Einstein's comment
"We can't solve problems using the same kind of thinking we used to create them."
Offcut2 has outlined clearly the issues :the transparent issue of identifying the toxic poisoning of soils throughout the food chain, resulting in the consuming of "dead" (absence of Chi, Prana, Life Force) food.
Results: polluted land, waterways, food.
Result: People buying the cheapest supermarket food that is so nutritionally defective that despite the massive volumes being purchased( consumed), we are nutritionally starving.
Result: Increasingly weak immune systems that cannot and likely never will evolve enough to thrive on toxic chemical poisons and insufficient nutritional sustenance.

I can hear the "oh, but we are living longer now!"
If you call it living with our population (both young and older) with puffy toxic bodies. All the avoidable sicknesses - cancer, diabetes, neurological system failure, cardiac/blood vessel failure etc etc.
Now we experience the "Drum Roll" - to the rescue come the multinational pharmaceutical industrial machine with a pill for everything.
The pills definitely help to extend life, but from observation of hundreds of people hooked into our "health institution" and from the energy and pain in the faces of the many of the mass-consumers of pharmaceutical drugs, it gives another meaning to "Living and Life!,"
When the pills no longer 'cut it,' in come the massive technological screening machines, -followed by the surgeons, radiation and chemotherapy ( the
most toxic of drugs.)
Very difficult to argue against the well financed propaganda, spin, lies and dodgy science propagated by Big-Pharma, and enabled by the Western Medical's financially - driven public and private health strategies.
Imagine the financial catastrophe in both the public, private and alternative health systems if we "ran" with a National fully organic farming philosophy? Many of the same pharmaceutical companies are getting a ' double dip.'
They make millions selling agriculture the toxic poisons, and the get a 'second crack' by selling the drugs to fix the illness that the poisons have caused.
Pretty smart business, provided you have no moral conscience/compass except massive profits.
The export demand for clean nutritious food has already been identified by commentators.
The same commentators have already started 'joining the dots.'
What is required is massive energy, technical support and financial assistance to help our farmers move into a economic model of nutritional excellence that already is being demanded in our more discerning markets.
We can leave out both Government and Federated Farmers (after analysing William Rolleston's position.)
Where there is a will there is a way, and there are enough courageous switched-on people and very smart farmers popping out of the woodwork!

I think with organics it's a matter of the marginal cost of being %100 organic and whether it's actually worth paying for that. The cattle we farm get drenched once in their life, very rarely if they are sick they may get an extra treatment. If you don't treat them at all many of them may get sick or suffer. I knew of farmers in the past that never drenched or dagged sheep ( usually because they were lazy :). The sick and daggy ones died and the remaining animals were worm resistant. Having sick untreated animals on your property today is a criminal offence. An organic farmer could drench the sick ones and sell them, but are they then %100 organic? There are a lot of people out there drinking too much, doing drugs, working too hard, exercising too much, eating too much, worrying too much, living on prescription drugs, but are sure it's superphosphate that's giving them cancer.

Tim, I am a 100% organics customer for the simple reason that 1) labelling requirements in NZ are a joke! 2) the trust the agri industry had from consumers has been lost because more and more people are becoming aware and critical consumers. We simply don't believe anything anymore unless it is 100% certified. And even then, I don't believe everything or everyone with a 100% organic label either, most certainly not buying ANY US or China made food products! I still try to determine as much as is possible if I can trust even a 100% organic label. And you can only thank all those people (farmers, interest groups, food manufacturers, retailers, politicians) who in the past until now have actively tried to sell us information that is simply untrue. Starting from 'safe' methods, to requirements for labels, to the excuse, 'we can only sell through retailers and they call the shots', I am afraid it is all just BS. There are also many people who can't articulate this feeling, and still buying 'price' based foodstuffs, but if you ever talk to many people about this topic, many feel somehow uneasy about their purchasing options... Make of that what you will, but that is some change in the air as people wake up and reassess their priorities.

Just saw this last night - super scary stuff in the dairy industry, made me quite sick had heard rumours of this.....
(skip the first minute just about new accounting stock valuation)

Very interesting report. Wondering which bank in particular is putting on the squeeze? My guess is one that use to be just a BS?

Well I hear it starts with a B and then a N but I could be wrong just asked around now. And it's not just Southland.

Another mate assures me it's the ANZ

I guess they are starting in Southland as the cost of production is pretty high there. Not much wriggle room. Thats a very sobering video.

Southland would possibly have the largest number/percentage of multiple farm owners with farms in one region I would think Belle. It would be interesting to know just how high that percentage/number is.

Do you mean equity partnerships CO? How does that affect the situation?

Belle, We had multiple applicants for our job who had farm owners who owned up to 4 Southland farms. Those folks were also the ones where the farm owners didn't put on fert, wouldn't invest in capital works - even when the system wasn't working well. One lower order sharemilker went so far as to buy the $7k stirrer needed for the effluent pond themselves as without it the system was somewhat diabolical to use, and the owner refused to buy one. Others had to pay for all the gates, rails and water system in the calf shed (>600 cow farm), plant in cowshed like teat spray pumps, dosatron system etc. Others did have these supplied and paid for the maintenance which is more common. Many had had their jobs disestablished and were being replaced by lower cost staff options e.g. contract milkers to Managers.

There are a number of foreign multiple farm owners - Irish, Dutch, German and Swiss. MyFarm has the bulk of their dairy investments in Southland. Add to that private equity partnerships where one party has more than one farming interest, and the number of farmers who own multiple farms in just Southland starts to add up. Some are 'old money' Southland sheep farming families who have switched their farms to dairy. Some of these farms are very well run, but those individuals who built their 'empire' by leveraging are more than likely to be the ones in the gun at the moment.

We have never farmed in an area where so many units were owned by so few. If the perception is the reality, only stats would show and I don't have them.

Yes its rumoured the corporates around here are all doing away with sharemilkers.

..and not doubt replacing them with compliant immigrant labour, just as is occurring in many other industries in the city. Prime example being nursing...hundreds of good kiwi graduates can't get work because of the masses being imported. Crazy stuff.

Yip. That be true rastus.

Very true regarding nursing new graduates but it also applies to experienced nurses as well. I know a number of very experienced nurses with post graduate education who can't get work because its cheaper to employ recent migrants who are happy to start work in NZ on the lower pay scales.

check out this mornings MPI & MH health alert

Q: what just happened?

Yes, you are right.
As procedure its correct.
Our lament is with the policy and stadards that got us to this procedure

Have it on pretty good info its Rabo Bank

$250~400 a cow? ouch.

That is some heavy stuff.


Yeap, and about $60 a sheep. Not good

The accountant was talking in calf heifers. If they are big and fat they will be worth at best a thousand to kill. It was a very absorbing video, but he was an accountant not a stock agent. There do seem to be a large number for sale on agonline, I did a tally up a few days ago. About 10000. It seems a bit early maybe for so many listings.

Have family in the trades down that way that work on these farms so will put the word out for some more info

Thanks for link Abbey. So the official stampede for the exits has begun... Was always a when not if.

I am not suprised many are in trouble. At school they were not the sharpest knives in the drawer. When you spoke to them to a person they came out with the usual crap such as " they are not making any more land." They looked over the fence , did not put a lot of thought into it , borrowed millions to expand and now wonder why they are struggling. No market goes up in a straight line.

Well, no legitimate market anyways. Unfortunately we do have a market as we all know that they have made everything hinge off and are quite prepared to do whatever takes to keep the status quo

For someone who was happy to make his income from farmers Gordon your hypocritical arrogance is showing. You need to climb out of that 1950/60/70s hole that you seem to live in - farming has moved on from that..

We recently advertised for sharemilkers our final 5 all were tertiary qualified. One had a CV that would have stood them proud in the corporate world.

There are approx 1000 dairy farms in Southland approx 62 are for sale and word is 35 of them are bank sale recommendations. That is 6.2% or 3.5% - hardly what I would call 'many' as a percentage of dairy farmers in Southland.

Gordon poses an interesting question you may be able to answer CO. Would the guys around Gordons age be ok now in general. Are we looking at the younger guys or is this gona hit all ages all businesses more or less?

I think Gordon is 55-60? From those I know - that cohort is largely ok. A few have sold their beach houses to come through ok.

The 40-50yr olds who have expanded on cheap credit and the younger farmers IMO are the ones at risk. I heard Heartland Bank was lending up to 80% LVR to sharemilkers the mainstream bank wouldn't lend to, at interest rates of up to 8% - totally irresponsible IMO.

We required all applicants to produce a budget at $4.20 - some said the banks said they didn't need to go that low but as that was our requirement they all produced one. These budgets were done in the last week. Banks were still budgeting on selling MA cows at $1750. One even told them to budget on $6.50 for next season and rang back 2 hours later and said it had to be a flat rate of $3.50 all the way through. So how are young people who don't have the financial research/resources that the banks do, supposed to know what is a robust deal when the banks present one to them?

What are you see/hearing Belle?

Didnt heartland buy the sketchy PGGWrightson loan book?

We recently advertised for sharemilkers our final 5 all were tertiary qualified. One had a CV that would have stood them proud in the corporate world.

CO, I have been duped by professionally trained to interview Oxbridge grads who did not know their arse from their elbow when it came to making money. They had to be let go after 3 months. Thereafter, it was only in field competitors who got to the interview stage.

Haha. Yes I hear what you are saying Stephen. That particular CV I referred to was impressive for the corporate world but not very relevant for the requirements of our job, they had however done reasonably well since they went farming, so made the stage 1 of the process. They didn't make it to stage 2. ;-)

Not a lot really CO. Very big corporates around here. The last time I spoke to a rural real estate agent was in early december and buyers were still pretty cocky back then. Some farms around the south waikato got some pretty big bids on them. Seemed crazy at the time. But it has seemed crazy for a long time. Got a real good young farmer down from here. His farm is a family farm. They are pretty solid. Back at calving he said he just wanted out. Over it. Wished they had never converted. I really felt for him.

CO the farming boys left school at 15 and went farming as they hated anything that stretched them. Us city boys generally all went to uni. I have to wonder why highly qualified people want to milk cows as the farmers I know say it is mind numbingly boring. Life is short. Surely if you have some talents you should use them to the upmost. I know you guys have chased capital but that is gone for sometime yet. The word around town is the Banks are starting to pounce and that will get worse as time goes by. They will not flood the market as they want to limit their losses.

Have you ever spent time on a farm?

Or in Realityland?

No as I went to university. In my professional capacity I have advised many farmers. You could throw a blanket over them. Generally under educated and if I heard it once I heard it a hundred times. " they are not making more land. " I have news for them. Yes they are in Europe , North America and China. Farming in NZ is going to do it hard for sometime to go by yet. Only those who are currently fiscally strong will survive. Those who have been greedy and or stupid will be sold up.

"Those who have been greedy and or stupid will be sold up." Wise words Gordon, the great bear market of 2016 is underway, "everyone" is going to look stupid who has too much debt.

There are going to be quite a few young farmers as collateral damage this season Tim - not everyone who is being sold up will have been greedy or stupid. Sharemilking (50/50 and lower order) and contract milking jobs are disappearing in considerable numbers from what I am seeing. These young people own stock and/or plant. It's not just those who have too much debt that are going to be caught as falling values will be affecting equity positions when these young folks are forced to sell.

But it's not all doom and gloom. :-)

Not all gloom and doom when NZ's biggest farming lender puts $3.95 on it for this season for now and then says if I recall correctly another two tough years to follow. How many of those young farmers bought land and cows at the highs CO. I imagine a clear majority of them. That is why they will struggle.

Crikey Gordon not everyone can be as switched on move it groove it as you. Have some pity for these young people who have only seen the upside. Seriously when was the last major dairy crash....20 odd years ago. This is the industry they were in and to compete to get cows they had to pay through the nose. But many would have reared calves and grazed them out to forward their ownership plans. The banks lawyers accountants rural media and farm advisors have all been cheerleaders to this debacle. Us older coots can call in years of experience to see reality. Yet now these young ones herds will be valued at schedule values or less knowing the banks. Equity gone...and out on their ears. I am sure some are obnoxious twats as you will find in any industry. Are you going to hold that against all of them?

To buy cows they also had to compete against the corporates with bigger pockets. One of those is the NZtaxpayer Landcorp. Try fronting up to a clearing sale with those guys as your bidding buddies. At the budget end the meat values have been sky high, so either way you paid big money. Easy from the armchair of an accountant to criticise.
Keep in mind the comment below is the bigger herd manager or sharemilker that up until recently had a few employees to do most of the milkings. This year managers might be more hands on. Cups.

And all those interest only loans

Your words Belle. They "paid through the nose." Just like the FHBers in Auckland late last year who are now seeing their equity getting eroded.

Yeah rorted on a battlefield that is not level. I have little sympathy for the older farmers. None whatsoever for corporates. But the young have little experience. They just want to get cracking and make a living. For themselves. Be their own bosses. Do you guys not remember being young, idealistic??

Our new sharemilkers are currently contract milkers moving up, our current sharemilkers are moving on to a bigger position, so no it is not all doom and gloom. They all are hunkering down for low payouts. Some peoples misfortune is another's opportunity.

Ah Gordon, you clearly do not understand farming terminology as you are referring to land owners and cows. 50/50 sharemilkers own cows not land. Lower order sharemilkers have no requirement to own cows and don't own the land - they own some plant.

My previous comment was on collateral damage not those who may have made their own problems. As a uni grad I would expect you to understand the difference. But then again.....

Gordon the last thing these guys do is milk cows. Once you get to a certain size of farm the manager/sharemilker/owner has a pretty interesting life. Lots of stuff to fix, employees to sort, phone work, computer work, field days. The kids are on hand. You can be running your own business at a young age. Managers make really good money. Dairy farming has changed hugely from 20 30 years ago. Its a pretty good life for a bloke if you have got to a certain level in the business.

In January Moody's highlighted that, at more than 140%, the New Zealand banking sector has the highest loan-to-deposit ratio out of 13 Asia-Pacific countries. Of the big four banks, S&P figures as of December 31, put ANZ's at 135.9%, ASB's at 136.6%, BNZ's at 162%, and Westpac's at 147.4%. Kiwibank's was 109.9%

a result of the light handed hands-off regulation of the RBNZ - with resulting added risk for NZ financial stability.

I totally agree, Tim12 that the worm burdens on animals have to be controlled.
This is where farmers need support - technical/ financial and continuous good advice to make the transition to Organics.
We used to farm with chemical drenches and fertilisers.
My daughter trains horses, and she is an absolute "stickler" for keeping a regular worm count on her horses.
The past three years she has used the homeobotanical worm drench and has been very pleased with the results.
On the superphosphate: I am not an expert but during my former occupation as a rural journalist, I have been fortunate to learn from many amazing farmers, conventional and organic, and more subsequent reading and research has convinced me that it is not that difficult to obtain excellent results using alternative fertilisers and grass cultivars.
I still maintain a large majority of our farmers are switched-on enough to master organic farming.
What has been missing is the will from our (supposed) industry leaders to embrace the newest clean organic technologies on behalf of our farmers instead of bailing out failed companies.
They have no trouble getting behind dodgy financial deals, (SCF) or giving the OIA the nod to sell off our land and houses.
In fact, anything that smells of Big Money (short term, finger in the dyke) deals seems to appeal to the "One Trick Ponies" at the top.
It can hardly be called Wise Governance!
" The world we have created is a product of our thinking. To make changes we must change our thinking." Einstein

With the best available switched-on minds to market and sell such premium products, returns to farmers could stand a better chance of consistently higher prices.
What happens if we "stick with the system" we have had for the past 40 or so years?
Like Einstein said: we can't stick with a system that has not delivered, even worse, is damaging our environment, not to mention the mental health of our farmers.
The Banks, Meat Companies, Fonterra, not to mention a lack of vision from Federated Farmers or the Government, have all been complicit in that they offer no creative thinking.
Their modus operandi appears to be " status quo" as long as it keeps delivering massive salaries to CEOs along with the ego stroking that often accompanies it.
We have to put our creative thinking and energy behind our farmers and deliver a return that is deserving.

BNZ may more than double size of NZ$3 billion covered bonds programme; says depositors' secure

Don't know where it came from, but there was an old saying "a borrower or a lender neither be", which would piss a few suits off.

William Shakespeare - Polonius in "Hamlet".

Interesting read... and implications depending on what the USA decide to do...