DAIRYING IN THE LAND OF THE KIWI January 2017 – Progressive Forage Grower Magazine

Dennis Hancock Extension Forage Specialist The University of Georgia

When progressive forage growers hear the words “New Zealand,” they instantly think of rolling pastures

and intensive grazing management. Those who are also in the dairy industry are likely to think about the volume of milk produced in such a tiny country. The amazing ability of New Zealand farmers to turn grass into cash has fascinated many of us forage fanatics. So, in late October and early November 2016, a group of 22 people from 9 states across the U.S. jumped at the opportunity when the American Forage and Grassland Council (AFGC) organized a New Zealand tour. Along the way, we learned a lot about their pasture-based dairy industry.

Dairy is King in New Zealand Known for its high productivity and favorable climate, NZ has been a major agricultural exporter since

its early days as a country. This has been particularly true for dairying. New Zealand is roughly the size of Colorado with a population of just over 4.7 million, but they have around 6 million dairy cows. Over 90% of NZ’s annual dairy production is exported, and the value of those dairy exports totals over $10.8 billion each year. For perspective, their total GDP is estimated to be $180 billion and those dairy exports account for around 20% of their $54 billion in total exports. Needless to say, dairy is king in the land of the kiwi.

Dairying is never easy, but dairying in New Zealand has its advantages. Fonterra, the cooperative run by

Kiwi farmer-shareholders, processes and sells well over 90% of NZ’s milk. Under excellent management, Fonterra has managed to leverage this volume such that it now holds a commanding 30% market share in the world dairy export market. In addition to garnering excellent milk prices, Fonterra’s management results in enough black ink to ensure dividends are paid to the shareholders in good years and in years of negative cash flow. In addition to Fonterra’s marketing prowess, Kiwi dairymen are supported locally with an unrivaled infrastructure of consultants, genetic improvement products, farm supply stores, veterinary services, farm financial advisors, agricultural contractors, and other service providers. These intangibles are hard to put a price on but certainly add value.

The Expansion Era The historical “grass-only” model of milk production in NZ has largely gone away (Fig. 1). Now the

most common dairy system in NZ is a hybrid, pasture-based system that feeds substantial amounts of ryegrass baleage and corn silage grown on farm. Though rare, there are now a few dairies in NZ that are housed full time. Still, most dairy cows in NZ will take 60% or more of total DMI as grazed pasture, but production is pushed with corn silage and bought-in feed. All of these changes increased their cost of production. Historically, New Zealand has seen few rivals to their claim as the least cost milk producer in the world. Now, their cost of milk production is not too dissimilar to our high input/high output dairies in North America. With greater inputs, NZ dairy output has increased by nearly 50% in less than 10 years. Profitability increased, at least until the dairy market pendulum swung back.

New Zealand consumes only 230 lbs of dairy products per capita, which is well south of the 560 lbs we each consume in the U.S.

Figure 1. Dairy systems in New Zealand have intensified from the grass-only, low input system (left) to hybrid systems where the cows are fed a silage or concentrate supplement on a feed pad (center). Though still rare, there are several free-stall, fully confined feeding systems (right), including some that have robotic milkers.

Support from Within Keep in mind, there are no safety nets for dairy farmers in NZ. Their government removed all subsidies,

tax breaks, and price supports in the mid-1980s. Even the Extension service was axed. The NZ government’s cuts were viewed by many as draconian at the time, but the industry recovered relatively quickly from the shock. It forced the various agricultural sectors to become self-sufficient, and one would be hard-pressed to find any Kiwi dairyman longing to have government aid back. To provide most of the services lost in the cuts, the dairy industry developed DairyNZ. DairyNZ is an agency funded by, focused on, and guided by the dairy industry. A levy of $0.026 is assessed on every kg of milk solid processed in NZ and a board of farmers and industry advisors directs DairyNZ’s activities to benefit the farmer and industry (Fig. 2). DairyNZ reported a total levy income of ~$45 million in the 2013-2014 season. The levies are renewed by a farmer-only referendum every 6 years. The outcome of the referendums demonstrates their popularity. The latest vote was in May of 2014, and the referendum passed with 82% of Kiwi dairy producers voting in favor.

Figure 2. How DairyNZ allocates their annual levy income speaks to their focus on the dairy industry. *Disease control in NZ is primarily focused on TB, which consumes 98% of this budget allocation. (Source: “Where Does Your Levy Go,” DairyNZ)

“Dirty Dairy” Not long ago, a kiwi dairyman in the Waikato region of NZ’s North Island would quietly take pride in

the claim that their region had more dairy cows per hectare (or acre) than anywhere else in the world. Today, that title is a burden. News media reports and television ads that link pollution, water shortages, and global climate change to the dairy industry are now commonplace in NZ. Often, specific farms are singled out and prosecuted in the court of public opinion, if not the real one. The overused “dirty dairy” phrase is such a common expression among the urban and suburbanite “townies” in NZ that it now has its own Wikipedia entry.

Environmentalists have focused primarily on nutrient loading in streams and rivers, since clean water is

a cause all Kiwis can get behind. Kiwis are rightfully proud of their pristine countryside, crystal clear rivers, and brilliant blue lakes (Fig. 3). New Zealand is one of the most scenic countries in the world, and that attracts tourists and their money. The tourism industry is an important economic driver in NZ, a close second to agriculture. Consequently, there is an increasing amount of regulation on water usage, stream protection, and nitrate leaching.

Figure 3. Crystal clear water spills across Huka Falls (left) as it exits Lake Taupo and forms the Waikato River. The Waikato runs north through the heart of NZ’s dairy country (right), and the dairy industry is often blamed for the sediment and nutrients added to the river.

At the Table or on the Menu In contrast to usual practice in the U.S., NZ’s regulatory councils take into consideration concerns about

regulatory methodology voiced by farmers and researchers. Farmers frequently serve on these councils and voluntarily participate in regulatory commissions. This participatory approach allows the farmer to have a voice and put a face to the regulations being considered. Engagement in the process has given the farmers a chance to examine the data behind the assumptions driving regulatory policies, and collect data to challenge the validity of that data. As one of the farmers put it, “I feel I have to have a seat at the table. Otherwise, I may be on the menu.”