Federated Farmers Dairy AGM address
Released 30 Jun 2009
Lachlan McKenzie, Federated Farmers Dairy chariperson, Federated Farmers Dairy AGM, Auckland
Welcome to your National Conference and Annual General Meeting of Federated Farmers Dairy Industry Section.
Despite the views and actions of some regulators, the yellow brick road leading to the milking shed is no longer paved with white gold. I know many of you out there in the paddocks of New Zealand are under pressure at the moment, but let's not forget that we still have a lot to be proud of. I want to challenge you to take home one concept from this conference which is, "what does success look like?" As leaders of our industry we should always test ourselves in our advocacy roles against this statement. I will come back to this later.
First let me give my view of the future of the New Zealand dairy industry. It goes without saying that the year to date has been a roller coaster ride of highs and lows. Yes, there will continue to be volatility in milk prices over the next few years, but New Zealand's grass-based dairy farmers are well placed to take advantage of this.
The fact is, it is still a good time to be a dairy farmer and despite all the ‘doom and gloom', good dairy farmers will make money and contribute significantly to New Zealand's economy. Fonterra's revised payout for the 2008/09 season of $5.20 represents the third best payment for Fonterra farmers, ever. Westland's payout for 2008/09 is not so good. Fonterra's forecast payout of $4.55 and Westland's $4.50 to $4.90 is equal to the ten year average payout, which is not too bad at all. The problem is that our costs have risen by over a dollar and some how that has to be clawed back. So even though our dairy sector faces challenges from both the financial and environmental fronts, the outlook is still positive.
For one, the OECD says average dairy prices are likely to lift between 2009 - 2018 relative to the 1997 - 2006 period. This increase, it says, will be driven by rising energy and vegetable oil prices. In New Zealand, we are well placed to take advantage of the lift, due to our world class business and environmental management practices based on our pasture feeding systems (less energy and grain input/costs).
Take the recently released dairy industry strategy. It received credit for being produced collaboratively - which was probably a first for the dairy industry. Federated Farmers Dairy played a role in producing the strategy; we came to the table at an early stage to discuss what should be left in or out. By the time the document was released for consultation, there was very little we needed to add. Most importantly, the strategy will bring the dairy industry together, which was apparent around the policy table during the development stage.
However, this does not negate the fact that the Federation will be keeping a close eye on DairyNZ and the processors. As New Zealand's only independent advocate and voice for farmers, we aim to make sure DairyNZ doesn't take its eye off research and development or stray into marketing or research that sits within the mandate of milk processors.
Unfortunately, there is also some bad news in the form of the extra costs imposed upon farmers. Here I will just briefly mention Meat and Wool New Zealand (M&W NZ). Their discussion document, released in June, suggests a doubling of the beef kill levy. There was no consultation with the dairy industry on strategy, areas of expenditure or benefits to dairy farmers. I remind all dairy farmers to register on the M&W NZ role and exercise their democratic right to vote on the Commodity Levy Act vote in August. Ask: what benefits do you receive from M&W NZ? Remember you pay over $30 per head in levies for every beast slaughtered.
The Federation's role, however, is to advocate to keep the cost of farming down and make sure untenable regulations never get across the line. We don't shy away from taking regional councils, government departments and financial institutions to task over the way they treat their rural communities. One recent gain for farmers followed the Federation's work to win an exemption from secondary container requirements for above-ground diesel tanks of up to 2,500 litres. This victory for commonsense means farmers won't have to install bunding on their old 500 gallon diesel tanks, leading to savings of between $1,000 to $2,000 per tank.
Another recent win was the retention of two dairy farming positions - Assistant Herd Manager and Assistant Farm Manager on Immigration New Zealand's Immediate Skills Shortages List. This allows dairy farmers to continue to employ workers from overseas and more importantly, to extend the permits of workers who are already here filling these roles on New Zealand dairy farms. These workers have gained valuable experience and training. To send them home to be replaced (if they can be) with lay workers would have been a real cost to the industry.
What about the pressure we put on banks to pass the Official Cash Rate (OCR) cuts on to farmers' interest rates? With rural debt totaling $45 billion, every one percent of interest is worth $450 million. Now that many banks are playing ball, you are left with more money in your back pocket. The rest will benefit as your fixed rate terms end.
We also keep a close eye on Fonterra's performance. Earlier this year, farmers came to me expressing concern over GlobalDairyTrade. Federated Farmers has been seeking a better understanding of what the global dairy trading platform is trying to achieve. Does it help farmer incomes? We understand that MAF is, this week, briefing Agriculture Minister, David Carter, on the material it has collated on the platform. We, too, look forward to receiving this information.
Irrespective of the selling mechanism used, Fonterra as the main co-operative will effectively set the price all farmers receive for their milk, including the small independents. The small independents will not pay significantly above Fonterra. This is ably demonstrated in markets around the world where co-ops and independents co-exist. The main co-op sets the price paid for milk, while other co-ops are the exception and will pay more if they can. Therefore, all dairy farmers need Fonterra to be a highly efficient company, with long term objectives clearly articulated and agreed to by farmer members. The decisions Fonterra farmers make over the coming months on capital structure are absolutely critical to the future success of our industry. About 85 percent of the world's milk supply is sold through co-ops. I don't believe 85 percent of farmers have got it wrong.
As leaders in the dairy industry, it is important that you have a very clear understanding of what success will look like in 20 to 50 years. Think about it, debate the issues and create your vision of what success will look like for you and the industry.
On the global stage, however, I cannot stand here and say it will all be okay. There are some major issues that need to be worked through before they have an even greater impact on the viability of dairy farming in New Zealand.
As you would expect, United States and European Union subsidies top the list. Here in New Zealand, we realised some time ago that subsidies distort the free market and therefore, have no place on our farms. Yet US Secretary of Agriculture, Tom Vilsack, and President Barack Obama don't seem to grasp the effects of subsidies on the global market. Subsidising 92,000 metric tons, or 7 percent, of the total US dairy exports is a real kick in the teeth for New Zealand farmers. But the big question is, what can we do about it? I say - a lot, actually.
For a start, Federated Farmers has taken the debate right to President Obama's doorstep at 1600 Pennsylvania Avenue. Our very own President, Don Nicolson, voiced strong opposition to subsidies in one of America's most respected newspapers, The Wall Street Journal. Don's opinion piece, appropriately titled Milking Export Subsidies, took our argument right to the American public. Then at the National Fieldays, nearly 1250 New Zealand farmers - including some of you - signed an open letter, aimed at bringing insidious, protectionist trade barriers to an end. The letter will be sent to both President Obama and the President of the European Commission, José Manuel Barroso.
We are a small country and agriculture is our bread and butter. So if our economy is to remain strong in the face of international trade barriers, we will need to be vocal...and we will need to be heard.
I now turn to the environment, and I commend you for your work in this area. On the regional level, we have just experienced the cleanest Gypsy Day ever. In fact, the Southland Regional Council, which has been at odds with our industry for too long, congratulated farmers and transport operators for keeping stock effluent off the roads.
This time last year, Fish and Game New Zealand was calling on the government to regulate production in the agricultural sector. My how the tables have turned. NIWA and DairyNZ's last report showed that water quality is no longer declining in the intensive dairy catchments despite a major increase in animals. Now that the scientific evidence is on our side maybe Fish and Game can actually focus on its real job. For a start, the population explosion of introduced Canada Geese has seriously impacted farming and waterways due to its irresponsible actions. Fish and Game has failed its statutory obligation to manage this pest and is instead attempting to spread it to new parts of the country.
All I can say is that it is a shame our most vocal critics suffer from selective hearing when it comes to the great strides dairy farmers have made in recent years.
Speaking from experience, this is clearly evident in my home town of Rotorua. Federated Farmers have worked with Iwi, councils and other land users to manage Lake Rotorua. But most of the problem has been created by more than a century of human sewage and other run-off from Rotorua City. Now the Bay of Plenty regional council is looking to introduce the dire prospect of a targeted dairy rate at a time when the economy is in a downturn. For my farm that would an extra $17,550. The most featherbrained aspect is that it covers the whole farm and not just the effective area, meaning it applies to retired land on dairy farms as well.
Unfortunately, this is indicative of what other regional councils are doing too. Environment Southland has struck a new differential rate for dairy farmers. These are just two examples of legalised theft from a minority sector in the community - the dairy farmer. The Federation will continue to fight unfair and ridiculous taxes and policies. But for all the good work we have done to date, there is still much to do.
So, lets come right back to my statement earlier. "What does success look like for the dairy industry?"
Success is; dairy farmers are allowed to reach their potential, unrestrained by incorrect use of the Resource Management Act and proposals such as the Emissions Trading Scheme and NAIT, together with other insidious regulation creep and galloping rates increases.
The Federation tirelessly campaigns against such impositions. Success for dairy farmers will be when their rights in property are respected by local and central government. Finally, success will show the dairy industry continuing to work in the co-operative spirit of the past, to achieve profitability and longevity. Dairy farmers will be better off, but just as importantly, all New Zealand will benefit through our industry's contribution to our economic and social well being. At the same time, continual improvement our environmental stewardship will be aptly demonstrated by the good state of our environment nationally.
For further information contact:
Federated Farmers Dairy Council chairman, Lachlan McKenzie, 021 382 442
