Keith Woodford says that if New Zealand wants to capture an increasing share of the branded dairy markets, it will need to figure out how to make non-seasonal production systems work in our pasture-based environment

Keith Woodford says that if New Zealand wants to capture an increasing share of the branded dairy markets, it will need to figure out how to make non-seasonal production systems work in our pasture-based environment

By Keith Woodford*

I have previously written how New Zealand’s seasonal dairy industry aligns nicely with long life commodity production but does not align well most value-add products.  In contrast to New Zealand, in nearly everywhere else in the world – apart from Ireland, and some areas in Australia – the cows are milked for 12 months per year. This is driven by the needs of consumer markets. So if New Zealand wants to capture an increasing share of the branded markets, it will need to figure out how to make non-seasonal production systems work in our pasture-based environment.

It definitely won’t be a case of everyone moving to non-seasonal production, because there will always be a place for long-life commodities. But we do have to give serious thought as to how we can diversify away from such high reliance on whole milk powder (WMP). This WMP is essentially a product that is consumed in developing rather than developed countries. Currently, China is by far the dominant WMP consumer, and also now the largest WMP producer, but in time they are likely to move away from WMP to more consumer-focused products.

Producing milk in winter does cost more than producing milk in the warmer months when grass is doing its ‘growing thing’. So it has to be the processing and marketing companies that provide the lead and tell farmers what premiums there will be for out-of-season production.

Currently, there are some premiums for production outside the peak season but the pricing messages are complex, often short term, poorly communicated, and insufficient to get a response by mainstream farmers.

Fonterra already offers premiums to all farmers for any milk produced outside the four peak months of September to December. Both last year and this year, that premium has been and is 51c per kg milksolids.  As a consequence, and using Fonterra’s current overall guidance for 2016/17 of $4.25 per kg milksolids, by the end-of-season financial wash-up they plan to have paid $4.01 for milk produced September to December, and $4.52 for milk outside these months.

Fonterra calculates the 51c off-season premium (or peak-season discount if viewed from the mirror-image perspective) by allocating to the peak months of September to December all of the cost of servicing capital invested in stainless steel and associated processing equipment. This is based on an assumption that there is surplus capacity at all other months. To those trained in economics, this makes sense. However, this seasonal premium / discount does not make allowance for the inventory costs of holding product over a 12-month cycle. And it is calculated only on the assumption that any additional facilities will be bulk standard WMP dryers. That last assumption does make sense if New Zealand is to remain wedded to long-life commodities, but bigger premiums will be needed to fill the value-add factories for 12 months of the year.

Throughout the country, there is a range of premiums emerging for specific situations. For example, famers in South Canterbury can earn an additional $1.40 per kg milksolids over a 45-day period in June-July for milk destined for the mozzarella factory at Clandeboye, and Westland will be offering $1.91 for a 100-day period next winter for those of its Canterbury farmers who can service their UHT factory at Rolleston. Also, Fonterra has a range of contracts for farmers supplying ‘town milk’ over the winter period, although Fonterra is currently squeezing back on the prices of these contracts.

These and other premiums can be seen as a first step, but they will need to become much more widespread if we are to move further down the value-add path.

Once premiums become explicit and come with long term contracts, then farmers can make their own decisions as to whether it is worthwhile moving to non-seasonal production, given that there are both costs and benefits.

Perhaps the first myth to shed is that spring calving is what comes naturally to cattle. The truth is that cattle, unlike sheep and deer, are happy to breed at all times of the year, and if left to nature, will calve at greater than 12-month intervals. It is only us humans that try and squeeze them into a 12-month cycle. The consequence is that despite hormone-related reproductive techniques to induce early ovulation after calving, there are high culling rates of cows that do not keep to the strict 12-month breeding cycle. Indeed, the major cause of culling in New Zealand is failure of cows to keep to the 12-month cycle. This challenge to maintain 12-month calving has increased since pre-term calf inductions have been banned. 

There is another myth in New Zealand that the attractive-looking high-powered ryegrass-dominant pastures that we feed our dairy cattle are the natural feed for cattle. One only has to observe the runny green liquid coming out from the rear end, and compare this with beef cattle on the hills, to realise that high-octane largely single-species ryegrass pastures are an unbalanced feed. 

In most parts of New Zealand, non-seasonal production means that cows need to be off-paddock in the winter. But there is increasing realisation that we need to go down that pathway even for dry cattle if we are to manage the nitrogen leaching problem. 

There is a range of ways that off-paddock wintering can be achieved. In some cases, it may be by stand-off pads, but unless there is a soft surface for cows to lie on, this raises welfare issues for anything more than about a three-day period. 

Lincoln University is currently trialling a range of open-air feed-pad surfaces, together with a dung and urine collection system, at their new Ashley Dene dairy farm. This includes use of matting surfaces. This may work in some Canterbury winters, like the current one which so far has been warm and with modest rain, but in most parts of the country a roof will be required. 

The overall wintering system that can satisfy both welfare requirements and the need to minimise winter leaching of nitrogen is the free-stall barn where cows choose their individual padded cow-bed which is raised such that most of the dung and urine falls out the back of the bed into a laneway. These are the systems used widely in Europe and the USA, where they have been refined by 50 years of experience.  So far in New Zealand, there are about 40 of these cow houses that are operational.

New Zealand farmers are doing their own experimentation as to how to make these barns work in the New Zealand environment. Some are feeding the cows in the barn, others are taking the cows outside for a period of daily grazing and then returning them to the barn. Some farmers are using the barns throughout the year, in some cases using robot milkers, while others are only using the barns in winter. Some are already using the barns in association with non-seasonal calving, while others are sticking with spring calving given a lack of pricing signal in their region to do otherwise.

The big issue that frightens off most farmers is the capital cost, typically between $6 and $10 per kg of milksolids produced on the farm. However, there are lots of compensating factors.

To start with, most farmers, even with seasonal calving, find that they can get increased lactation lengths by milking later in the season. For those that go non-seasonal, the average cow-lactation length goes up by more than 50 days. American research and practical experience has shown that well fed barn cows can be milked to within 45 days of the next calving, without any downside.  Also, winter feed requirements are substantially reduced for cows in a wintering barn. And summer heat stress is also greatly reduced for cows that can access the barn in the heat of the day. And then there are the benefits from less winter pugging of pastures.  Most of the barn farmers whom I have contact with have increased both their per cow production – often by more than 100kg milksolids – and also their per hectare production, through a combination of some or all of the above.

In New Zealand, we still have lots to learn about how to optimise non-seasonal dairy systems in our pasture-based environment. We have lots to learn about the best use of crops within these systems, and we have lots to learn about controlling the cost of production. From what I am seeing, there is a huge range in performance on these farms, just as there is on seasonal pasture-only farms.  But there will be more than one path forward.

When I look ahead 20 years, and regardless of farming system, I see much stricter rules about winter leaching of nitrogen. Wintering barns, nutrient management, and non-seasonal milking to help cover the costs thereof, could all go together as a package.

To many farmers, all of the above will be many steps too far.  The existing paradigms about so-called low-cost milk production from pasture are deeply embedded in the psyche. And in any case, most farmers do not have the capital to make such changes right now. But the notion that in 20 years we can be doing the same things as now is scarcely tenable from either a financial or environmental perspective.

So it will be a long journey, but all journeys have to start somewhere.


Disclosure of interest: Keith Woodford consults to Calder Stewart, whose business interests include the construction of free-stall barns.


Keith Woodford is Professor of Agri-Food Systems (Honorary) at Lincoln University and a Senior Fellow (Honorary) of the NZ Contemporary China Research Centre. His archived writings are at http://keithwoodford.wordpress.com

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The existing paradigms about so-called low-cost milk production from pasture are deeply embedded in the psyche.
including financial structure.

Love the article, a real heads up for Fonterra to not have most of its plant sitting idle half the year.
We are only one dirty pipe in a stainless tank away from a total mess...

Possibly an opportunity for Northland region wintermilk and added value incentive payment, making Northland dairying more economic which has always struggled with a harsh summer environment

Environmental rules may determine areas that will suit all year production. Currently the Southland ES 20/20 plan will prohibit the spreading of effluent solids from 1 May - 30 September.

Casual Observer
I agree. But barn farmers are much better able to control effluent than on farms where the cows are on-paddock. Yes, in Southland 150 days of storage sounds about right. That means about 12 cubic metres of storage per cow (80 litres per day). I always include effluent issues in the cost estimates.
Keith W

There is not the skill-set capacity in NZ farm staff for barn systems and some farmers have sold out their 'barn' farms because of this.

I do agree that there are some areas that will be suited to all year round farming, but for others it won't be a viable option. In Southland many farms graze off over winter, so to bring that effluent back to the farm during winter will mean potentially significantly more effluent being spread in already fully allocated catchments. It's not the 150days storage that is the issue - it is the inablilty to spread it when conditions allow but the rules don't.

So good to see hear somebody to rise above the conventional and think things through. Thanks Keith

"Producing milk in winter does cost more than producing milk in the warmer months when grass is doing its ‘growing thing’. So it has to be the processing and marketing companies that provide the lead and tell farmers what premiums there will be for out-of-season production."

It is as simple as the above statement. What will drive this (or any) paradigm shift is the appropriate financial incentives. Until then farmers will continue to attempt to squeeze the most out of the existing model.

Not quite that simple SS, especially if you are talking of barn systems as Keith is. The real issue is a dearth of skilled farm staff to effectively run and understand, a barn system & I believe that in some cases this resulted in farms being put on the market. It takes quite a different skill set to run a barn system.

We farmed under the old 'town milk' system for years as both sharemilkers and farm owners. Premiums only go so far in getting farmers to change. We enjoyed it as farm owners - fewer cows and milking all year. But it's the milking every day that puts some farmers and staff off.

The current $1.40 that Keith quotes is gross if you are in Southland - you have to take cartage of milk to the factory off that. For some farmers that figure after costs is a net 70cents.

It is interesting that Danone and OCD recently held a joint meeting on organics for farmers in Southland. Perhaps that is the way they see the future for value add?

Fair comment CO. I would argue though that where there is sufficient financial incentive the systems and workforce will materialise. As Keith alludes the key is for it to be long long term enough to give genuine confidence.

Interesting re organic demand. As an alternative to Keith's 12 month supply system could more not be made of our grassfed/free range model to differentiate, what are now essentially bulk commodities, competing directly with the overseas factory farmed equivalents? While Keith's suggestions have real merit, if they don't produce a differentiated product they could end up merely replicating what others are already doing, for no real advantage.

Seems to me we have really struggled across the pastoral sector to leverage our natural advantage.

I agree with the sentiment expressed by CO and SS. Nutritional distinct and superior milk derived from grass fed cows is a way to differentiate our milk from exporting competitors.

The three Vs, Volume, Value and Velocity are not what Fonterra should be aiming for.
It sounds like the Ethos of a fast food chain, just bang out something looking like a burger and get the punters through the door as quick as we can.
How do we start looking like a premium product?
NZ should be to milk, as what Germany is for top end cars.

How long will they fail to adapt because the dimwits in marketing don't want to lose the nifty VVV slogan?

Kakapo, the 'dimwits in marketing' have been maintaining the status quo for longer than the life of VVV!
Farmers have been calling for 'adaptions', or increased sales levels of branded unique products since Fonterra was first formed.

Look at Tatua's payout...
And now Miraka is following a similar path as Tatua it will be interesting to see what Miraka farmers get in payout once the 5 year contracts run out. Remember they got Kingi Smiler, the Fonterra 'reject', as their Chairman...
Fonterra needs more than an increase in marketing spending...they need the senior heads to roll along out of there to let more savvy and potentially less expensive folk through.