Andrew Hoggard - Address to Dairy Industry Group

Federated Farmers Dairy Chairman Andrew Hoggard - Address to Federated Farmers Dairy Industry Group

Monday 27 June 2016

Good morning colleagues, observers, media, and of course all the keyboard warriors and trolls waiting in anticipation.

Another season has gone by and whilst there are some positive noises out there around potential market improvements, the prices we all face are still below the break even point for many of us. The expectation is that the financial implications of this downturn will see us in pain for a few years to come.

Much of the commentary over the past few days has been around the Brexit, and the fallout from it. One might ask, what this means for New Zealand Dairy? It really is all up in the air at the moment, our exports presently to the UK are pretty minimal. Whilst we have quota, the tariff rates do make it uncompetitive against cheaper imports from Ireland and the Netherlands. If we are able to quickly organise trading terms with the UK that are at the same level as the EU, then we certainly have good opportunity. Under WTO rules existing agreed access can’t be downgraded. However on the downside, we have now just lost an ally around the EU table in negotiating a free trade deal with the EU. With all the global uncertainty this may have a negative impact on global demand.

The economic fallout is interesting because it really does show the impact caused by trade barriers. All this panic is being caused by the fact the UK is now leaving the free trade area of the EU. It is not because they are leaving behind all the red tape, bureaucracy, regulations, various common policies, and the fact you will now need to have your passport stamped going between the UK and the rest of Europe. Let’s face it if we had of had more effort globally at the WTO, and had a better setting globally for trade, would this be such a big deal? One hope that I have is this will result in more focus on the WTO, which can only be good for us.

At our conference today we will be focusing on several aspects of the situation facing us right now. With sessions, on the future of sharemilking, system change, the financial and market reality we face, and finally on the Fonterra strategy.

The sharemilking system that is unique to New Zealand, has served our industry well. It has allowed progression. It has given our industry access to innovative and fresh thinking. When many other dairy industries around the world complain they struggle to attract the next generation, here sharemilking has provided the means for progression and succession in our industry.

The current climate has seen a number of sharemilkers leave. It is not because they are poor farmers. Many will be very good farmers, but timing has not been in their favour. Whilst there is the adage that one person’s loss is another person’s opportunity, we need to recognise we don’t want a situation where we lose too many of the next generation.

We need to ensure our sharemilking system is robust enough to handle the volatility we are experiencing right now. There needs to be flexibility to ensure that during the poor times the hardship is evenly balanced, and during good times the gain is also balanced appropriately.

We have had a lot of talk about system change on our farms. Much of that talk is about going back to all grass. But is the message the likes of DairyNZ is giving out, the same as what farmers are hearing? I think there might be a little bit lost in translation, does maximising your pasture usage mean "all grass"?

The other changes we might need to be considering on New Zealand dairy farms is debt level. When compared to other countries we have a very high debt level on our dairy farms. There are several factors for that, in many cases farmers in other countries haven’t been able to expand because of regulations, thus they haven’t needed to borrow. Or they have had volatility from other factors, such as weather in Australia, which means they have a mind-set around managing that and carry less debt.

Whether it’s a conscious decision or just an inbuilt setting that no one has considered and just occurs, I can’t tell you. But the facts are they have less debt.

We have been able to handle higher debt levels, simply because returns have been good, our weather by-and-large is okay. It allows us to take more risk in other parts of our business.

Is this current downturn just a blip, or are we entering a new period? Things might look slightly different than the last decade and our risk profile might be slightly different than the last decade. Will this mean we need to re-evaluate what a smart level of debt is? I doubt we will get all the answers to that question this afternoon, but these are the questions farmers should be asking themselves going forward.

On the theme of tough times, it is interesting to read the comments of the overnight dairy market experts and their predictions of doom and gloom and how we will be so much better if we just follow their brilliant advice.

Apparently some people think we are all going to be out of business in five to 10 years time as everyone will be drinking synthetic milk. If that is the case then why all the stressing over our impact on the environment?

Another point I hear mentioned is that we need to all go organic. That we are all just idiots for not doing it because we would be so much better off. Now if farmers wish to go organic then that is their choice, certainly there are good market pricing signals at the moment that show the demand for organics is certainly higher than the supply.

Undoubtedly we will see an increase in supply from farmers to meet that demand, but as we know all too well, for any given demand, an increase in supply will mean a drop in price. So will the current margin between conventional and organic continue? It all but evaporated during the global financial crisis in 2008 and a number of organic farmers left the industry.

Also worth considering, is how much of that demand for organic is based on the fact that organic produce is viewed as coming from family farmers, who care about the environment, treat their cows well, and feed pasture. Quite a lot I would imagine. Now tell me I haven’t just described every farmer in this room. New Zealand, more than any other country in the world needs to cash in on this truth.

We have seen European co-ops, trying to take advantage of grass fed label and now they and other companies are considering further differentiating themselves with talk of "GMO free" labels.

This is how it should be - let the market decide. But let me be clear, just because one company, wishes to use a GMO free label it doesn’t mean the entire country needs to go that way.

Federated Farmers has fought for farmer and consumer choice. We think we can have both. Diversity builds strength.

While some have pushed for New Zealand to be GMO free, won’t companies and farmers implement their own audit systems if the premium is worth it?

National GM freedom may reduce the costs for those players who wish to remain GM free but would impose an opportunity cost on those for whom GM is an advantage.

If the premium isn’t worth the cost of implementation and auditing then is it really a premium we should be chasing. Are we adding value or adding cost?

Also worth considering is that we have some damn strict rules in place in New Zealand, the recent GMO labelling law that has just moved through the US congress, does not require gene edited products to be labelled. We should ensure that our laws are in sync with those countries we aim to trade with and extract a product premium from. This would mean the anti-GM movement would have to give some ground.

Finally just to keep the keyboard warriors happy I best make mention of freshwater. There has been a lot of talk about how important it is to have swimmable rivers. I couldn’t agree more. However, the talk then moves to irrigated dairy farms being the reason why we have so little in the way of swimmable waterways. No mention of anything else. The discussion never actually focuses on defining swimmable, and what are the actual factors influencing swimability in each waterway.

My assumption is the key thing around swimmable would be that it is physically safe to swim in a waterway and not get sick. So surely that is E-Coli we need to be focusing on in that regard?? Other factors might be water clarity.

However, the way the discussion goes one thinks that we are all going to die from nitrogen poisoning. Is there really an issue for swimability in terms of diffuse nitrogen run off, well here is my basic understanding. The level above which nitrogen in water becomes unsafe for drinking is around 10 - 11 mg/l, now on the Land Air Water Aotearoa website, which is meant to be our nation’s one-stop-shop of environmental information, it shows the levels for total nitrogen which is all forms of nitrogen including nitrate.

So we have had much concern over the years for the health of the Tui cheerleaders swimming in the Mangatainoka River just below the Tui Brewery. Now this waterway is listed in the worst 25 percent for New Zealand waterways for its level of nitrogen, so what is it? Well in fact its level is .825. So it is fair to say you are safe to keep drinking Tui. In fact, given that Evian drinking water has a level of .8535, I think it’s a fair assumption that the main risk to your health in New Zealand waterways will not be from nitrogen. If you hadn’t already worked it out - Tui is better to drink than mineral water. Now this isn’t too diminish the fact that we do have elevated levels in certain ground water sites that are a definite concern. But remember we are talking about swimability of waterways here.

So if we are instead to focus on E-Coli as the most likely concern in regards of safety with swimming, what is safe for E-Coli? Again using the LAWA website, it shows me that E-Coli counts up to 260 cfu per 100ml as acceptable for contact recreation, counts from 260 - 550 it is an alert, and counts over 550 that is an action level. That is when the health authorities put a sign up saying swimming or collecting shellfish is not recommended. Out of interest for all those that might want to accuse me of going off anecdotal evidence, the monitoring numbers downstream of my farm, are 114, which by the way is actually an improvement from the numbers upriver of me.

When I look at my own region, the Manawatu River has 51 monitoring sites, only one of them shows a site over 550. It is at an average of 575, this site is situated at the Woodville sewage treatment plant.

But that doesn’t mean that we can sit back and do nothing, as just because the average is a certain number, you do get peaks when the levels are definitely unsafe and we need to take care of that, so by all means if we as communities want really high standards then let’s do that.

But let’s focus firstly on properly deciding what swimmable means. What are the scientific numbers that we need? How do we properly understand what work is actually required to get to a certain standard? Dairy farming cops a lot of blame for everything, but on the E-Coli front, I think we have already done heaps to reduce the impact.

Another question is when do we measure? If E-Coli levels are really high during a flood in winter, do we get stressed out that someone might get a stomach bug from going swimming during a flood?

The LAWA site is really an excellent site, and it has straight up data. It is a shame that for some regions they haven’t been collecting all data up until recently. I think it is essential for the decisions around fresh water that all New Zealanders are properly informed with good data, and can seek unbiased information.

The government needs to ensure that the LAWA initiative gets the funding it needs, so that the people of New Zealand can go to this site and see the data for themselves. Have it explained in clear terms what that data means. What is good and what is bad. At the moment the site is probably a bit lacking in terms of explanations of what things mean, and that could definitely be improved. It needs to show results as to how they compare to other waterways in New Zealand, with some context as to where the standards or ideals are at.

Without this context nationally or internationally data could give a false impression at first glance. For example being in the worst 25 percent of players wearing an All Black jersey still makes you in the top 99.99 percent of rugby players in the world.

Yes, had to get a sporting analogy in, I hope you all enjoy the conference, and I look forward to the discussion and a few Tui as well, now we all know they are very safe to drink.

ENDS

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