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Tim Mackle, chief executive of DairyNZ.
Right now many dairy farmers are looking at their costs line by line. Where can they make further savings?
The latest re-forecast milk price from Fonterra now puts this season's farmgate milk price at $3.90/kgMS. DairyNZ's breakeven figure for the average New Zealand dairy farmer is $5.25. That's a big gap to bridge.
Around 85% of the 14,000 owner-operators and sharemilkers affected by the low milk price are not making money this season. They are forced to build up more debt and erode their equity to get through another season of looking after their cows. The situation will impact on the people they employ and the rural businesses they support.
At times like these DairyNZ has to deliver more value than ever for farmers.
Our industry's heritage of pulling together and taking a co-operative approach to challenges gives us a strong mandate, as did our last levy vote in 2014. But it comes with the need to stand alongside farmers and deliver real and tangible value that makes a difference to their businesses, individually and at an industry-wide level.
To help farmers we've been running our Tactics campaign and other key events for some time, designed to home in on cost creep and provide access to tools and support to make changes in their business.
DairyNZ has always maintained that the ability to efficiently harvest pasture is the best determinant of profitability across all farm systems. Pasture still provides the least expensive feed for dairy cows and remains the foundation of our farm systems. That has been our constant message and is at the heart of our advice to, and research for, farmers. It will continue to be our message.
Pasture and the ability to turn off supplement use is also the foundation of how we are able to manage volatility and farmers are using this mechanism strongly. Farmers are using the obvious levers at their disposal to manage volatility in milk price – culling cows instead of using supplementary feed to maintain cow condition.
In terms of our long term research and science objectives we can't just turn off the tap. Two of our most important research projects, for example, are seven-year investments – one focused on developing forages for reduced nitrate leaching to future-proof our industry.
The other is researching cow fertility and lifetime productivity. Taken together, these are estimated to cost the dairy industry $1 billion annually. The profitability of dairy farming could be increased by $500 million per year if industry targets for reproductive performance were achieved.
These targets will not be achieved using current knowledge and technologies alone. A biological breakthrough is required. The aim of this project is to accelerate genetic gain in fertility and manipulate the biology that underpins cow fertility.
But as stated above, we cannot easily switch research on and off, given our requirement to keep achieving results for farmers. If we do, the Government will also stop funding us. However, we are looking at what research projects can be pared back for now, so as to reduce our costs.
I am accountable to our farmer-led board for how $67 million of levy funds from dairy farmers delivers value for the investments the board prioritises and approves. Farmers are also keen to hear the value they get from this large sum of money.
As production drops, so does our own income, although not to the extent of farmers. The levy is not a fixed cost; it is pegged to farmers' business in terms of milk production, being set at 3.6 cents per kgMS.
The board has not relaxed any of our targets. It is expecting more from less, as I know farmers are too.
• Tim Mackle is the chief executive of DairyNZ.
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