Allan Barber shows there is no easy route to higher levels of farm profitability as the dark outlook for EU and UK farmers shows. NZ farmers will find it hard to duck global trends

Allan Barber shows there is no easy route to higher levels of farm profitability as the dark outlook for EU and UK farmers shows. NZ farmers will find it hard to duck global trends

By Allan Barber*

When sheep and beef farmers in New Zealand grumpily ponder their forecast returns for 2016-17, they may be able to take some comfort from the precarious state of farmers in Europe, particularly the UK where they are facing even more uncertainty of income.

Private Eye’s Bio-Waste Spreader column contrasts the rhetoric of the Environment Minister saying farm subsidies must be abolished post Brexit with a report by her own Ministry, Defra, which finds British farmers would be unable to keep going without them. In the 2014/15 year dairy farms were the most profitable averaging GB Pounds 12,700, whereas cropping farms made GBP 100, lowland livestock farms (most like our sheep and beef) lost GBP 10,900 and grain growers did even worse. These profits or losses came before farmers paid themselves any wages or drawings.

The only thing keeping them afloat is the average EU subsidy of GBP 25,000 which Andrea Leadsom, Environment Secretary, would like to get rid of. Apparently one solution suggested by Farms Minister George Eustace would be to pay something that looks remarkably like the Single Farm Payment which applies across the EU and which anti EU Tories like Leadsom and Eustace have been rubbishing for years.

Subsidies make up an average of 25% of farm revenue across the EU, while in Norway and Switzerland farmers receive government assistance of more than twice that amount. In Canada farmers receive almost 20% of their revenue from subsidies and even in the United States they make up 10%. In contrast it appears New Zealand farmers going cold turkey over 30 years ago have done something all other agricultural producing nations have found impossible.

This may be cold comfort for sheep and beef farmers tired of seeing their profits decline year on year, but the fact remains they have been profitable every year, even marginally in 2007/8 which was at a 50 year low. Conversely in 2011/12 average farm profit was $131,100, similar to 2001/2, but 10 years between such highs is clearly unsatisfactory. This sort of trend produces land use changes, as landowners try to find the option producing the best returns. But there don’t seem to be any clues in the rest of the world about how to avoid the commodity trap and achieve consistently high returns.

A London based market intelligence firm Euromonitor International reports global meat consumption rose 2% in 2015 because of increased consumption in emerging markets, but the main area of growth was in chicken and pork with the Middle East and Africa and Asia Pacific being the only regions to post an increase in beef and veal consumption. Consumption in North America declined 3.1% and in Latin America by 3.7%. All meat consumption in Western Europe declined with beef and veal coming down by 1%, while in the USA pork rose by 8% and chicken by 5% as consumers chased leaner meats driven by dietary concerns.

It is difficult to fathom how New Zealand agricultural producers in general, and more specifically red meat producers, will be able to buck global trends which are driven by many factors including regional population growth, health and diet, growth of convenience foods, relative economic prosperity and future technological developments in protein production. As an exporting country New Zealand needs to be acutely aware of what global consumers actually want their food to deliver, how this is changing and how quickly.

What is certain is the increasing importance of maintaining or improving our environmental performance as a means of underpinning our brand reputation. Food provenance has become a critical success factor, particularly in traditional developed markets. It is no longer enough to rely on New Zealand’s slightly ragged claim to be 100% pure, but we must actually demonstrate the truth of such a claim and build a brand story around it. In a world which may be retreating from the removal of trade barriers, it will be essential to improve our reputation for product quality at every stage of the value chain.

With all due respect to the dairy industry’s efforts to introduce stringent environmental standards, it doesn’t appear to be winning the PR battle with some commentators increasingly gaining air time to criticise water quality. This battle must be won, if New Zealand is to build a brand story based on quality of production, environmental performance and provenance.

In a world where synthetic proteins will be able to simulate the taste and texture of meat, it won’t be enough to supply undifferentiated beef and lamb and expect to receive a premium price for it. In order to satisfy the demands of the wealthiest 1% of the world’s population, it will be essential to provide a differentiated food experience targeted at the precise needs of particular market segments.

However these markets must be carefully developed before farmers can expect to be rewarded with a premium for what they produce, unless they meet a tightly defined specification for a product which can be marketed directly to an end consumer who is willing to pay more than usual for it.

As is evident from the incomes earned by UK farmers before subsidies, there is no easy route to higher levels of profitability.


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*Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country. He is chairman of the Warkworth A&P Show Committee. You can contact him by email at allan@barberstrategic.co.nz or read his blog here ». This article was first published in Farmers Weekly. It is here with permission.

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26 Comments

Southland lamb anyone? How to really take the heat out of overcooked Auckland.

"Want a free case of craft beer? If you send 30,000 yen ($260) or more of your taxes to the town of Yamanouchi in Nagano prefecture, they’ll send you 24 bottles of a locally brewed beer to say thanks.

Want beef? Redirect 50,000 yen of your local area taxes to Miyakonojo in Miyazaki, and you’ll get 3 kilograms (6.6 pounds) of high-grade beef in return.

This Furusato Nozei (Hometown Tax) system began in 2008 as a way for people to channel part of their taxes to help rural areas struggling with falling populations and shrinking revenues."

https://www.bloomberg.com/news/articles/2017-01-09/japan-s-rural-towns-a...

The only way Dairy NZ will win the PR "battle" is for farmers to stop polluting our waterways. "A" grade environmental performance is what we need - not "E" grade (unless it is NCEA, where E trumps A).

But that's the problem, you see. Farmers' environmental performance certainly not A-grade, but it's considerably better than E. Substantial efforts have been and are being made, for example over 90% of farmers have fenced cattle off from waterways, and in some places results are beginning to be achieved.

None of which is given any acknowledgement by people such as Greenpeace. What they don't seem to realise is that if you heap abuse indiscriminately on people, regardless of whether they do nothing at all or make an active effort, you will reduce their incentive to make any effort. Why bother, when it will make no difference to the punishment you'll receive?

Can you give us an example of those results?
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The quality of New Zealand's waterways haven been declining consistently over the past 30 years. The fencing off of waterways on farms is a start, but merely a start. Some of the problem is animal faeces, dropped in situ, so to speak, but the bulk of the problem is nitrogen leakage which is not source-specific. And by that I mean nitrogen which has been applied to grassland to make the grass grow. Ot ends up in our rivers due to soil erosion and rain.
Another big issue is cattle urine. This ends up leaked into our waterways, as well.
Both these can't be fixed by simply fencing off waterways.
The cost of which has been partly, if not largely, borne by local councils, by the way.
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What needs to happen in order to make an actual difference, is a reduction of stock, a limit to nitrogen application on fields (as is happening on a few farms in the taupo catchment area), and a big replanting effort for waterway verges, at least 10 meters deep either side. Grasses, and shrubs and plants that will filter what's in the soil before it reaches waterways, and will stop soil erosion to boot.

"declining consistently" comment doesn't, ah, hold water. Most site show no change in last decade. Naki farmers must have been putting some work in for quite some time.

" In New Zealand rivers, the presence of many mayfly and caddisfly larvae is a sign of a healthy river ecosystem, while a preponderance of snails and chironomids indicates the opposite.
Figure 5.3 shows changes in MCI in rivers between 2000 and 2010.

Most sites show no change over this decade. There are a number of purple dots in Taranaki,
where a programme of riparian planting has been underway for many years. On the other hand, the presence of red dots in South Canterbury and Southland indicates a decline in river health."

http://www.pce.parliament.nz/assets/Uploads/Update-report-Water-quality-

Hm, I'd like to believe you, but the intensification of our dairy industry has had a marked impact on our waterways, and not in a good way.
They're in the news an awful lot.
I've taken the 30 years as a benchmark, because that's pretty much when the RMA came in (1991), and rivers and waterways have declined significantly in quality since then, showing that the RMA is still too much tilted in favour of development, rather than sustainability.
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Can you give me the full link to the report on pce? it seems to have been cut off somehow.
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I'd be interested to look at the raw data, and have one of my statistician friends look at it. If they make that data available, that is.

Something more up to date. I'll fix that other link. Urbanites not coming off squeaky clean here?

"Median water-quality state in urban and pastoral land-cover classes was poorer than in exotic forest and natural land-cover classes, and lowland sites in the urban and pastoral classes had the poorest water quality. Nutrient and Escherichia coli concentrations increased and visual clarity and Macroinvertebrate Community Index scores decreased as proportions of catchments in high-intensity agricultural and urban land cover increased. Ten-year trends (2004–2013) indicated recent improvements in ammoniacal nitrogen, dissolved reactive phosphorus and total phosphorus in the pastoral and urban classes, possibly reflecting improved land management. In contrast, trends in nitrate-nitrogen in the exotic forest and cool-dry/pastoral classes indicated worsening conditions."

http://www.tandfonline.com/doi/abs/10.1080/00288330.2016.1150309?journal...

Dair industry spin Ms de Meanour. Try following the science of Dr Mike Joy...and then reset your thinking.

The government's claim that 95 percent of dairy farms have fenced their waterways is a lie, an environmental scientist says.

"Dr Joy said the Sustainable Dairying Water Accord only required rivers, streams, drains, springs, lakes and wetlands over 1m-wide and 30cm deep to be fenced.

it was a good start, he said, but fencing the larger waterways did not get to the root of the problems as smaller streams would still contaminate them

It doesn't effect the amount nitrogen getting in the water, which is really the key issue with intensive farming in New Zealand, it (nitrogen) doesn't come over the land - it goes through the land and it's mostly through urine patches in the paddocks"

http://www.radionz.co.nz/news/rural/293736/govt-accused-of-lying-about-w...

I completely agree it's only a start. But it is a start, and it is one that has already entailed considerable voluntarily-incurred cost and trouble for farmers. That is not nothing, it is not E-grade, and it should be acknowledged.

I repeat, if you just heap abuse on people regardless of whether they do nothing or do something, then the likely outcome is that they will do nothing.

"voluntarily-incurred cost and trouble for farmers" Say no more... herein lies the attitude problem.

That's like beating the c##p out of someone and then expecting credit for rolling them out of the boot at outpatients.

if you just heap abuse on people regardless of whether they do nothing or do something, then the likely outcome is that they will do nothing. Couldn't agree more Ms de M.

As a farmer who was doing environmental works on farm back in 2000 for over a decade, and put land in to QEII covenant we now will do no more - what's the point when no matter what we do we are being branded as being the equivalent of environmental criminals. We don't expect kudos for what we have done, but neither do we accept being lumped together as an industry and vilified for an issue that EVERYONE has some responsibility for. As the Environment Southland website states - non dairy as approx 70% of pastoral land use in Southland, and HAS to be accountable as well. The biggest disservice environmental groups and some commentators on this site do for the environment is to label only dairy as being responsible. It allows everyone else to believe that they have no responsibility towards the environment.

Those folks like Mike Joy, who want to see animals out of the food chain by 2050, and use water quality to promote their personal agendas end up losing any scientific credibility with those whose behaviour they want to change. http://www.nzherald.co.nz/the-country/news/article.cfm?c_id=16&objectid=...

I agree with you that it's not just dairy, it's all cattle, and we still have more beef herds than dairy herds (about 4 times as many, if I'm not mistaken?).

All cows wee, not just the lactating ones.
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What it needs, is proper research. Sampling needs be done in a consistent manner, over a long period. The existing research is quite patchy, and doesn't cover everything.
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We know the main culprit is nitrogen, so we need to look at how we can stop/minimise the run off.
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I know there are stubborn heads on both sides of the fence, unfortunately. I'd consider myself on the environmental side of things, but I'm also pragmatic enough to want to work together to affect real change, for the better, for all of us.
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And you're right, we all have our own responsibility to look after our world.

DFTBA - nitrogen is not the main culprit in ALL waterways but it is the easiest one to find someone to blame. Fish and Game senior manager told me they see the problem in Southland rivers is sediment and they aren't too concerned about nutrients. In the Waituna catchment the upper catchment is N limited but the lower catchment is P limited. In a river like the Mataura, the issues at the top,midpoint and end of the catchment may be quite different just as it is in the Waituna. If everyone got to know and understand what the issues were in their catchment, be it urban or rural, and concentrated on putting their energy into sorting any issues out at that level, then collectively we would achieve far greater results than sitting in glasshouses throwing stones at others on issues we have no in-depth knowledge of. Note - this last sentence refers to people generally, not you personally DFTBA. It also does wonders for developing a real sense of community within that catchment. ;-)

The reality though is that stocking rates for beef herds are considerably lower than dairy, you can't really compare them.

I've started taken anything Mike Joy says with a pinch of salt, since I heard him say in a radio interview that his goal was to eliminate livestock from NZ, and that he believes the world needs to be vegan by 2050.

It is Dr Mike Joy, a scientist. Those attcking his credability are reminiscent of the climate denyers and smoking lobby. Instead of facts, its wishy washy personal type attacks. Take a look at the damage being done and understand that diary is the No 1 cause of increasing water degradation. If it carries on we will have one hell of a problem in a few years.....

So according to you, if someone is a scientist they can't possibly be pushing a personal agenda. I think that's a naïve view.

Especially when the funding comes from lets say , proving humans made global warming . If your agenda is to disproving this ( actual science, testing hypothesis ) you don't get money , not a big deal

Scientists never lie they just don't tell the truth anymore

Not just farmers:

Common taters can undoubtedly add to this list. It's certainly a long one......

The volume of tourist sh*t is nothing like the volume of our animal sh*t and urine but it does need to be dealt to.
We get about 4 million tourists/year and we have the number of animals equivalent to over 100 million persons. We are well beyond our land's carrying capacity.

"With all due respect to the dairy industry’s efforts to introduce stringent environmental standards, it doesn’t appear to be winning the PR battle with some commentators increasingly gaining air time to criticise water quality"

nice bulldung speech there. It's not the PR battle that needs to be won dude, it's the fact we are subsidising farmers with the loss of our ecosystem.

So where we have got to is we all need to collectively work together to improve water quality through a raft of measures including:
- Improved urban wastewater and stormwater treatment
- Reduced stocking of animals on land
- etc
etc
And we need to do this so the environment we leave our grandchildren (if there is one still livable) is better than it is today!

Reduced stocking of animals to land - to what stocking rate James007? This seems to be a bit of a generalist catchcry. In some situations using barns can mean better environmental outcomes on some soil types, but it can also mean that the stocking rate can be increased without any adverse effects. In other situations barns and the subsequent increased stocking rates can result in adverse environmental effects. It is not as simple as 'reduced stocking of animals on land' for some farms maybe, for others it's not.

I agree Casual Observer that it is not straight forward. I also agree that in some situations better environmental outcomes are achievable by using barns.
I think that we owe it to ourselves and future generations to do the work that answers the uncertainties. It is clear that currently, on some land, there are too many animals.

As a practical new years resolution we should all be prepared to drink the contents of our kitchen sink.
Hint: Look thoughtfully at your Dish Washer.

I guess the real standard of the debate can be shown above by the fact that the original article was completely unrelated to the majority of the comments.