The combined effect of the three latest global dairy auctions has been that US-dollar prices for dairy have risen eleven percent since Christmas. A farmgate payment above $NZ7 for each kg of milksolids (MS) of fat plus protein for the dairy year ending in May 2021 now looks close to ‘baked in’.
This means that for a second year, farmgate prices will exceed $7. This will be the first time that prices have stayed above $7 per kgMS for two consecutive years.
It will also mean that five years have passed since the two bad years of 2015 and 2016. The bad years were largely driven by EU internal quota removals and a consequent surge in EU production.
During the latest five-year period, New Zealand farmgate prices have been over $6 per kgMS every year. Compared to previous times, and in the absence of disruptors, pricing volatility has been much reduced.
Surely it is time for those who have been saying that dairy farming is an industry of the past, rather than the future, to think again. The messages from the market are that there is actually increasing global demand for dairy. There is also no big secret as to why this is occurring.
In the case of New Zealand, the biggest driver of what happens is demand from the citizens of China. Currently, approximately 65 percent of product sold on the Global Dairy Trade auction platform goes to China.
For those who say this is terrible that we are so dependent on China, it is important to understand that the marketing destination decisions are not made by New Zealand. It is the Chinese companies who are buying the New Zealand products while sitting in their offices in China and placing their bids online.
Most of New Zealand’s dairy products are still sold as commodities that become ingredients in processed foods. There are good reasons why this situation exists given the seasonality of New Zealand dairy. Eighty percent of the product comes from Fonterra, and Fonterra has found the hard way where its skillset lies.
There are many in our community who think that synthetic milks will take over within the next ten to fifteen years. I doubt that greatly.
To start with, the plant milks are nothing like the animal milks. Plant milks do not build bonny children. Rice milk and oat milk are inherently low in protein. Soy milk can be high in protein, but many of us are cautious about the health issues of a soy-based milk.
As for lab-constructed milks that mimic animal milks, they have huge challenges to overcome. There are good reasons why animal milks contain both casein and whey proteins.
Digging deeper, there are good reasons why animal milk contains all of alpha, beta and gamma caseins, and there are also good reasons why there is a multiplicity of whey proteins. There is also the multiplicity of fatty acids. Nature does not produce such complex products by chance.
Even when science solves all of those problems with a manufacturing structure that mimics a real udder, there will still need to be an energy-capture mechanism, be that wind, solar or other mechanism. There will also need to be an energy transfer system, presumably electricity, that brings this energy to the ‘udder factory’. It won’t come cheap.
Despite all of those positives, there are still plenty of challenges for dairy in New Zealand. The first big one is nitrogen leaching. The second is phosphorus runoff plus winter pugging and associated animal welfare. The third is greenhouse gasses.
I reckon we already have solutions to the first two within reach, although in saying that I acknowledge that I am outside the mainstream of industry thinking.
I am on record as saying that the future of dairying in New Zealand will include the use of ‘composting mootels’ for late autumn and through winter, where the cows spend much of each day in the mootel doing their pooing and peeing into the bedding.
It might sound strange to the traditional Kiwi way of thinking, but the reality is that composting technology is now available such that the cows can remain warm, clean and dry with the liquid evaporating away though the roof vents. There is no smell in a properly functioning open-sided composting mootel.
The cows can still go out to graze every day for a few hours as long as they then come back into the mootel for pissing, pooing and resting. However, in real wet weather, it is best that they are fed hay, silage or other materials within the mootel.
The concept is relatively new and we still have much to learn. But it definitely works as long as things are done correctly. Currently, I have a project funded by AgMARDT to bring together what we already know, and also what we now need to learn, as the concept spreads out across New Zealand.
From what I can see currently, the economics of the mootel system are good, but for some farmers the issue of finance might be constraining. We also have more work to do on bedding systems and making sure that sufficient sawdust, wood shavings and wood chips can be made available.
The other big issue is greenhouse gases, and that issue is surely not going to go away. The best we can hope for is that the debate is based on scientific principles and logic rather than assertions and emotions.
The good news is that the composting mootel concept is also likely to bring benefits in terms of both methane and nitrous oxide emissions. However, research is going to be needed to document what we currently think happens in the system.
The bad news is that there is still a lot of ignorance in urban New Zealand as to the extent to which the New Zealand economy is underpinned by export agriculture.
The recent report by the Climate Change Commission is going to ramp-up climate related action. The Government is clear in its resolve. I will have more to say about the Climate Change Commission report at another time. Here, I will restrict myself to some dairy specifics.
The Climate Change Commission expects that cow numbers will reduce by around 15 percent by 2030, but provides no specific policy recommendations to make this happen. Rather, the Commission sees this happening independent of climate-change policies. The Commission thinks it will be a consequence of freshwater regulations aimed at reducing nitrogen leaching and phosphorus runoff.
Although cow numbers are expected to drop, there is recognition that dairy is important to the economy. Accordingly, the Commission does not expect national dairy production to drop significantly. Rather, it will be less cows but more milk per cow.
The Commission thinks that increased production per cow can come from low input systems. At best, this will be challenging. It will require high energy feeds.
The one certainty is that there will be ‘black swan’ events that change many things. As Dwight Eisenhower said a long time ago, ‘plans are nothing, but planning is everything’. In the meantime, there is a pathway that leads into the maze.
*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. His articles are archived at http://keithwoodford.wordpress.com. You can contact him directly here.
34 Comments
As someone with absolutely no farming background, i always welcome articles from KW as they increase my very limited knowledge of an important sector of the NZ economy.
What I do feel confident in saying is that he is right to emphasise the continuing importance of farming which represents a prime example of Riccardo's theory of comparative advantage, a principle which underpins globalisation.
Were I in the farming business, I would surely make great efforts to raise my ROE; to depend less on some future capital gain to offset a less than adequte income stream from the capital employed.
Were you in farming, you'd do better to make great efforts to become physically maintainable, long-term.
Money, capital, investment - they're all artificial human constructs; related to nothing physical.
And comparative advantage, if from the other side of the planet and based upon finite stock of essential ingredients, is temporary.
:)
pdk,
But if you are right, there is no long-term. A catastrophic collapse is imminent. You and I are roughly speaking on the same side, but your prognosis is much bleaker than mine.
You mention entropy frequently and indeed, it is the fate of everything-eventually. However, while population, pollution, energy and other resources and climate problems are very real and pressing, I do not believe that they are about to usher in the end times, as you seem to think.
Keith
Listen to this BBC podcast
A Melbourne scientist listened to a bunch of Biomedical specialists regarding ventilators and how they worked
In the third-world they can't afford oxygen bottles
Turned out they had a very simple on-site solution
Imagine a mootel with a domed roof capturing gases from below and extracting the non-oxygen gases
Fixing the world
Extracting Oxygen by Removing nitrogen from the atmosphere
https://www.bbc.co.uk/programmes/p095rpr4
Worth the listen, it might be the eureka moment you are looking for
Depends on the density of the gases
iconoclast,
I am part of a project led from Canterbury University, which, subject to funding, will investigate whether we can transform methane produced in the composting mootel (emitted in the breath of cows, not from the compost) using biofilters. The methane will be transformed to CO2 immediately, rather than taking 12 years as now occurs in nature. We have an application to Govt for funding, but we may or may not be successful with that application. Even then, there is no guarantee that the project itself can be successful. That is always the case with genuine research, which is by definition a journey into the unknown!
KeithW
Yes , it would not be the main fuel , more a way of getting rid of the Methane , than providing energy. Maybe get 5% energy out of it. There is a kind of precedent , a company was providing a sytem that injected lpg into the air cleaner of diesel engines , not enough to ignite , but enough to boost the diesel engines output by 20%.
I understand that methane heats the atmosphere much more than carbon dioxide does, but that methane has the advantage that it doesn't last as long as carbon dioxide. However you imply that the methane is converted to carbon dioxide. This would mean that it is in fact in the atmosphere for a long time - as carbon dioxide. So it loses its advantage over carbon dioxide. Do you know that the methane is in fact converted to carbon dioxide in the atmosphere?
That's about where the methane goes to. Where does it come from? Does it come from carbon in the grass? Is it part of the carbon cycle? Will the grass absorb carbon dioxide from the atmosphere so that the net contribution of carbon to the atmosphere by cows is zero?
Earthling,
Yes, the methane comes from carbon ( plus hydrogen from water) and so it is part of the carbon cycle that includes plants, animals and the atmosphere.
Converting methane to carbon dioxide at the time of emission rather than the 12 years that nature takes would reduce the global warming impact of the methane molecules by about 96% (plus or minus a few percent depending on how the calculations are done).
KeithW
The mootel sounds interesting Keith, keep us up to date. Natural gas is used in our homes for cooking, of which most of it is methane. If we were able to capture methane (notoriously difficult) while the cows are in the mootels, it shouldn't be difficult to get it into bottles and out to consumers with a small amount of refining probably required in the middle.
Regarding having enough wood material, talk to people in forestry who leave huge amounts of wood and green at skid sites or down the sides of hills to rot after harvesting pinus radiata. We should definitely be looking at that for biofuels as well. Using that leftover waste is a triple win - better for the people replanting (they have to scramble over heaps of unused branches etc), could be the fuel source for bio fuel and your mootels, would mean less wood rot (methane release) and is generally sustainable due to the carbon cycle. Those skid sites sit abandoned for ages after harvesting, providing the area needed for converting the leftover into whatever form you need (as long as the machinery is mobile). Can be trucked out just like the logs.
And wood chips/sawdust +cow poos and wees sounds like it could be used as a potent bio fuel mix.
Fonterra and Dutch company Royal DSM will trial the use of a feed additive which inhibits methane in dairy cows in NZ. Trials in housed cattle are showing reductions of up to 30%.
https://www.stuff.co.nz/business/farming/124093975/fonterra-partners-wi…
I have a few points to raise here relating to points in the article and are only intended to raise discussion. First up the "gold rush" effect where something basic can be very rewarding, until it is not for any reason and lots of folk are left looking for something else to do as demand/supply reduces to lower levels or the commodity is superseded by cheaper alternatives and only the doggedly efficient remain. Examples could be, well, gold strikes, deer velvet, sea sponges, wool and more recently airlines, tourism and hospitality. Next, mammals produce milk for their young. We humans noticed this and found we could use other species milk as food for ourselves, so started taking some, which turned into removing their young and keeping it all for ourselves, that's farming. The same as clearing any existing vegetation and growing whatever we want where we see fit, that's farming. But we do this farming because we can, not because it is required for the human race to exist and mainly because there are now so many of us that to not do it this way would just not work. Many different farmed animals and plants are housed to provide the most controllable, comfortable, efficient and productive environment, also the reason call centers are what they are rather than work from home, so no new ideas there. Dairying will continue to be a moneyspinner for NZ, until it is not.
Regarding accessing a suitable supply of woody material is it possible to use the woody part of hemp for Mootels? Hemp shiv (inner woody part) is used for other composting applications. More hemp is being produced in Canterbury and there is now a factory that can process the fibre (outer part of stalk) as well as the seed. If the left over woody material could be used for Mootel compost then the dairy farmer could grow their own supply of woody material - perhaps using the non-irrigated parts of the farm where the growing hemp can capture irrigation and fertilizer runoff.
Brendon,
Yes, the woody material from hemp is suitable for Mootels. Last time I looked, price was the key issue - the growers were wanting a high price. Any material should work as long as it contains lignin which is the material that makes shrubs and trees stand up rather than fall over.
KeithW
I for one am certain of the Composting barn multitude of benefits, overcoming the uncertainty that financiers have towards the concept is a major hurdle ( couldn’t quite get my guys over the line).
Aligned with Keith’s research work farmers need access to Sustainable Finance to support those endeavouring to find solutions to the issues, government funding one option.Waiting for certainty of data stalls progress, seeing the future first is a sign of success that should be supported.
I guess that also points to another decision , for reducing / increasing our dairy output / number of cows. Do we remain a price taker, high volume producer for whatever the auctions offer. Or do we become a smaller volume price maker , here is our high quality , sustainable green milk products, and here is the price.
At the moment , I think Fonterra are leaving that up to the likes of Tatua , etc .
solardb
Tatua has been on a thirty year journey to its present position. Much of that success relates to specialised ingredients that go into the pharmaceutical and nutriceutical chains. In contrast, Fonterra has been spectacularly unsuccessful over the last 20 years in terms of being a price maker. A2 was their biggest opportunity to be a price maker but they fluffed that totally. When Fonterra was formed in 2001 they inherited a 50% share of the key patent, whereas The a2 Milk Company had to buy into that patent - they bought the other half share for $8 million from the Child Health Foundation - now called CureKids.
KeithW
'here is our high quality , sustainable green milk products, and here is the price.' Do you honestly believe that there aren't other countries that are already using the 'high quality, sustainable green milk products' pitch in the selling of their dairy goods?? Sustainable simply gets you in the market door these days. That is the expectation from buyers, it is no longer an exclusive point of difference. Fonterra products must have something that others see as worthwhile as it already receives a margin over what other countries on the GDT receive. Fonterra make over 1000 products from milk.
Kerry Group in Ireland is reportedly considering selling its consumer business in preference to keep the ingredients only part of the company. Kerry consumer business has a trading margin of around 7% whereas ingredients has a margin of around 15%. https://www.just-food.com/news/kerry-quiet-on-report-of-consumer-divisi…
Keith , yes , I was surprised the Fonterra spokesperson mentioned it in relation to the price. Maybe I misheard. It was National radio , around 8.45 a.m Thursday morning should anyone wish to listen.
There is a lot of weird pricing and supply/ demand issues at the moment with our suppliers , most to do with freight costs / delays.
Why don't we just all convert to more plant based diets? Seems like a no-brainer. Change diary farms to soy beans, eat less meat, less heart attacks, better for the environment?
You guys seen that game changers movie? On a serious note I gave it a go & recommend trying it! never felt better. Like that movie is 100% legit.
Can't cut out cheese though... meat no problems, just cant get rid of cheese... =)
Though I do still consume the odd sneaky whopper =)
Fluffy why do you think the emissions from Soy is better for the environment ?
Given Soy is Genetically Modified, requires cultivation, requires large scale roundup use, leaves the ground open to erosion, requires added nitrogen, requires carbon thirsty machines to harvest, and is nutritionally deficient.
Animals harvesting grass in situ is a much better option
Mate, please feel free to eat whatever you want. Let's be grateful for the choices available. Saying that wholesale slaughter of ruminants is good for the environment is a bit of a stretch. N0 such thiing as a "cow". Last time I looked it is a key species (of many also doomed absent ruminants) in a grassland ecology. Saying ruminants are bad for the environment is akin to believing that global warming began, long before humans existed, 40 million years ago when grasslands evolved. Nearly 50% of the global land area is desertifying grassland. Too dry for trees. The ecological function of ruminants is to rapidly recycle nutrients. No nutrient cycling=wholesale collapse of associated living systems i,e a desert. Deserts = bare ground from whence you get the infra red incident solar radiation which is the spectrum that greenhouse gasses absorb (little derives from vegetation covered ground). By far the predominant gas is water vapour and deserts create a further problem as water vapour persists as there is little to seed it into clouds.
Another point always overlooked is that every living system produces biogenic methane as part of the carbon cycle. The archea do not just live in rumens but also soil and plants. The largest point sources are wetlands especially if covered in trees. Just google "do trees produce methane?". The Amazon is most spectacular but I would suspect that the West coast is not far behind. So for water quality we are being encouraged to restore more wet lands which produces more marsh gas (methane) yet for climate change we must slaughter our cows because they produce methane. Ah well, situation normal.
Fluffybunny,
Attempts to grow soy beans in NZ go back to the 1960s, or perhaps it was the early 70s, when Chuck Docherty was researching them. They don't grow well in our climate. If growing more crops instead of cows was profitable then farmers would be doing it now. Also, most NZ soils lack the fertility to be cropped. Also, cropping would create a whole new set of nitrogen leaching challenges. Agriculturalists understand these things but much of the broader community, isolated within its echo chamber, does not understand these things.
KeithW
I would never doubt your view on the importance of farming to NZ, but it is borderline dangerous to throw lines around like "Plant milks do not build bonny children... Soy milk can be high in protein, but many of us are cautious about the health issues of a soy-based milk".
There is literally zero evidence to support these statements - the health scare around soy milk has been debunked comprehensively, and only unscrupulous nutritionists in the pocket of the dairy industry would ever claim that kids can't get the nutrition they need from plant-based milks.
The reality is that milk and dairy is key to NZ economy, yes, but it is much worse for the environment than alternatives and completely unnecessary nutritionally.
"The bad news is that there is still a lot of ignorance in urban New Zealand as to the extent to which the New Zealand economy is underpinned by export agriculture."
I could not agree more. While we do need to further develop some very promising export sectors such as ICT, we should also be realistic and not forget the fundamental and foundational role that export agriculture has played, is playing and will play in the NZ economy.
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