Dairy sector profit still on the table, but margin gap tightens
DairyNZ’s latest Econ Tracker update shows most farms will still finish the season in a positive position, although the gap has narrowed compared with early season expectations.
The gain equates to $187/ha or 26c/kgMS per year. The review was carried out by independent economic analysts Nimmo Bell at the request of the DairyNZ board and covers 2020 to 2025 when farmers forked out $341m as levy for DairyNZ.
While a summary of the full report will be released this month, DairyNZ chair Tracy Brown and chief executive Campbell Parker touched on the findings at the industry good body's annual meeting in Hamilton this month.
Brown says the review was commissioned as part of responding to farmer feedback during the levy consultation.
"We were responding to specific calls for greater transparency around return on investment," she says.
The review focused on 92 of DairyNZ's levy-funded projects or 84% of investments by value out of the total of 179 projects DairyNZ had on the go over that period.
Brown says the reviewers used a range of "rigorous technical methods" to assess projects, along with interviews and workshops, to validate the findings.
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She says these programmes have helped farmers effectively push back on the economic and regulatory pressures which have otherwise been weighing down on farm efficiency.
The report also recommends that DairyNZ can deliver through its strategy and the pipeline of projects already underway.
Parker noted that the review found "a very high" strike rate with all levy investments delivering positive returns.
On farm change delivered net present value worth 50x the initial investment. Much of this value was achieved by introducing good management practices to head off the reality, or the threat, of de-stocking, adds Parker.
Better freshwater policy delivered net present value 12 times than the initial investment, supporting farm profitability 6.8 times and low leaching systems 4.8 times.
Parker says other such as strong biosecurity had higher sums invested at the outset.
"At face value it produced a more modest 1.8 return - but due to the scale of levy investment and amount of co-investment by the Government and others - it tallied up, providing farmers protection value worth $44/ha/year or 3.73c/kgMS/year."
Only one investment - better ryegrass - has a modest (9%) chance of falling short. However, work on the forage value index is ongoing and the second trial may yet unlock the ability to capture gains in dry matter yield by broadening the research, says Parker.
"Together, the investments provide strong returns," he says.
"In many cases the money invested by DairyNZ was matched or topped up by the Ministry for Primary Industries (MPI) or other organisations to deliver value that farmers cannot achieve individually.
"This meant that dairy farmers got an even bigger bang for their milksolids levy and this lifted the average net benefit-cost ratio from 5.9x to 8.2x."
