Why are farmer co-ops being so unco-operative?

The National Institute of Water and Atmospheric Research (NIWA) is warning that by 2040 ‘time spent in drought’ is likely to be double what it is now. After the 2007-2009 drought, estimated to have cost the country $2.8 billion, farmers were urged to build more drought resilience into their farming systems. Measures such as water storage, irrigation, shifts in production timing, experimenting with pasture species and fodder crops, or moving operations to less severely affected regions were suggested. 

This overlooks the fact that these measures are costly, potentially risky, time consuming, and, perhaps of even more importance, that since the last drought farmers have been under pressure to pay off debt. 

The last drought occurred during high payout ($7.90/kgMS) for dairy. Since then the payout has fallen and costs of production have increased. The schedule price for meat has also decreased, and Beef + Lamb NZ’s latest predictions are that farm income before tax will be reduced by 54% this season. 

Government declarations of drought in different regions might be of assistance in ensuring farmers know they are not alone, but the rest of the package is of marginal value. Of more use might be an investigation of drought behaviour in the so-called farmer-owned cooperatives. 

Fonterra has confirmed a milk price of $5.50, the RD1 price of palm kernel expeller has increased from $260 to $360 in the last few weeks, and the schedule price for cull cows has dropped from about $700 to $300-400.

It would appear that instead of having the needs of the farmer first and foremost, the companies are following a traditional business model of seizing an opportunity to make additional profit. Although some of this profit might be returned as a dividend to farmers, immediate cash flow positions are deteriorating now. 

Nationwide, late last year concerns were expressed at strategies which involved sending money to establish businesses offshore when overseas investors are developing processing companies in New Zealand “because the milk price is cheap”. Internal competition and undercutting in international markets was also raised as an issue, as it has been for many decades.

The answer lies in farmers’ hands. If they don’t like the company strategy, a vote of ‘no confidence’ in the board would create a change. 

Most boards have regular re-elections, but the number of members elected or re-elected in any year is usually small. This ensures institutional memory is preserved, but it also leads to ‘business as usual’. Research with monkeys and bananas has shown that ‘group-think’ dominates and a new-comer is generally prevented from radical behaviour by those with institutional memory.

If farmers want a change, they can take action. Of course there is a risk: alternative strategies might not result in immediate benefits. But current strategies appear not to be delivering what individual farmers need. And it is the individual farmers who are suffering. Few people in cities are aware that the $2.8 billion loss to the country in the last drought was carried by 45,000 farmers and their families, and some of the agricultural support industries.

Government help is needed to explain exactly who is suffering, to investigate who is profiteering, and to underscore the fact that food prices must increase to allow farmers to be more sustainable – economically as well as environmentally. 

And farmers can make their feelings heard at the next board elections.

• Jacqueline Rowarth is Professor of Agribusiness, The University of Waikato.