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Where does NZ dairy industry go next? - 1st Oct 2014

Where does NZ dairy industry go next? The recent decline in Fonterra's milk price will see farmers focus on lowering costs and increasing the efficiency of their farm systems.

The 37 per cent drop from last season's record of $8.40 per kilogram of milk solids to $5.30, will have huge flow-on effects for businesses that support agriculture and the overall New Zealand economy.

Every dollar a dairy farmer spends is estimated to create around $6 by the time it goes through the economy.

Fewer dollars spent by farmers means less "cream" for the rest of us, including city dwellers who have never worked on or even visited a farm. This highlights the importance of dairying to the New Zealand economy – and the reliance of our economy on one major industry.

There have been large changes to the New Zealand dairy industry over the past few decades. Back then, farm systems were based mostly on pastures with some grazed crops, and were stocked to match pasture availability. Our good soils and relatively abundant rainfall helped make these systems low cost and highly profitable.

Nowadays, the industry has expanded into less traditional, sometimes more marginal environments.

Stocking rates have increased on the back of additional bought-in feed including maize silage and palm kernel extract. In some regions irrigation systems cover drier summers and cow housing systems are being used to manage wet conditions and effluent, and make feeding easier.

It is ironic that while large parts of North America and Europe - where housed cows and the use of supplementary feed are common - are looking towards "the New Zealand pastoral dairy system" to increase their profitability. It seems that parts of our dairy industry are headed in their direction!

Recent articles by DairyNZ strategy and investment leader Dr Bruce Thorrold and Rabobank's director of dairy research Hayley Moynihan have highlighted the similarity in the cost of production between the United States' most competitive dairies in California and the least profitable half of the New Zealand dairy industry. It is clear that our farmers can not beat those from the northern hemisphere at their own game - housed cows fed supplements - and that our competitive advantage is still a grazed pasture base.

However, a major issue facing the New Zealand dairy industry is dealing with nutrient losses, especially nitrates. Animals naturally excrete the majority of minerals they eat and a concentration of nitrogen in their urine results in nitrate being available to leach into waterways.

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Part of the drive to house cows is in response to managing nutrients. Interestingly, previous research indicates that "closed systems", where cows are grazed mostly on pasture and then gradually dried off as the pasture supply drops, leach less nitrogen than "open systems", where supplements are brought in to both increase the stocking rate and extend the lactation length.

The Pastoral 21 program, a collaborative venture between industry and government has four sites throughout New Zealand, investigating ways to reduce nutrient losses at the farm system level. Farms managed by Massey University, Lincoln University and DairyNZ are exploring how to make dairy farm systems more efficient with a lower environmental footprint. The research involves a variety of approaches including changes to stocking rate, incorporation of cropping systems and using housing systems with the aim of protecting soils, growing more pasture and better managing nutrients in animal effluent.

Massey's Number One Dairy Farm is also starting to explore management options with the aim of remaining profitable while complying with Horizons Regional Council's OnePlan nitrogen leaching limits.

It is clear that while the issues facing the New Zealand dairy industry and its future are complex, there are encouraging results from past and recent research, both here and in similar pastoral systems overseas.

The answer for some farmers may lay in winding back intensification, as there are management options to reduce dairying's environmental footprint that don't need capital-intensive systems. For others, it will mean managing what have become more capital-intensive farms, in a way that allows them to remain profitable in the often volatile world milk supply market.

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