Thursday, October 10, 2013

Fonterra & The Botulism Scare. What Actually Happened

Keith Woodford's blog is great. He doesn't post often but when he does its good.

His latest post is on the Fonterra botulism scare. Keith outlines the turn of events.

Here are the main points.

It all started back in May 2012 when some plastic came loose in a whey concentrate dryer at the Hautapu plant near Hamilton. The risk was that this plastic had got smashed up and possibly melted within the dryer, and then mixed with the whey.
The only way to find out for sure was to hydrate the whey powder (which is soluble) and then filter out any solids.  For reasons not clear, Fonterra chose to do this using equipment that had not been used recently.  Unfortunately the equipment had not been properly cleaned.
Once hydrated and then re-dried, the product passed the mandatory bacterial tests, but did have a level somewhat higher than typical. 
By this stage there should have been two orange flags but the Fonterra system recognised neither.  The first was that once the product had been reprocessed, then it should have been drafted away from human use and used for stock feed. The second orange flag was when the re-processed whey powder gave elevated but technically acceptable bacterial counts. Once again, this should have been enough to restrict its use to stock feed.
The next flag came in March 2013, when an Australian division of Fonterra re-tested some of the powder before using it as an ingredient. 
This time they found bacterial counts had further elevated. In all likelihood these levels were still below technically acceptable levels, but the fact that levels had risen in the powder would have been indicative of anaerobic bacteria being present. 
Fonterra saw this as an orange flag but it should have been a red flag. All products processed from the Hautapu plant using the same production system should have been immediately removed from the supply chain and placed under bond. Instead, Fonterra decided only to do further tests. 
Hindsight is wonderful. If in doubt leave it out.

Discriminating between sporogenes and botulinum is difficult. There is no quick laboratory test. Instead, it is necessary to culture the organisms and then feed them to mice. If the mice die then it is botulinum; if they don’t die it is sporogenes.
In this case, it would seem that some mice may have died but not enough to be sure. 
So AgResearch reported that it looked likely that there was botulinum present but they were still not sure. 
At this stage Fonterra did see a red flag. The Government was notified and there was a product recall.

If only Fonterra had seen the warning flags earlier on, then all of the damage could have been avoided. The products should have been removed from the supply chain before there was any risk of them getting anywhere near any consumers. If that had been done, then no public recall of products would have been needed.
Things got worse when Fonterra's representative went onto live TV and said that they had actually found the botulism toxin in infant formula! We now know that the actual harmful toxin was not present.

One of the interesting issues going forward will be whether legal action is now undertaken, and if so, as to who sues who.
Their unhappiness is not that Fonterra delivered them a product containing Clostridium botulinum. Indeed Fonterra did not deliver such a product. Their unhappiness will be that Fonterra so bungled the management of the scare that their infant formula market in China has been seriously damaged.

I was speaking with a food safety consultant recently. He has a client who manufactures and sells blackberry powder to the asian market.

His product has been stopped from entering into some asian countries. 

He was notified by his customer via an email in broken english explaining that they won't purchase anymore product because botulism was in New Zealand products.

This issue does not just affect dairy products.

I suppose this highlights the dangers of the food business. Reputations can be ruined so quickly. 

As a consumer, I often wonder how food can cost so much. Consumer may only think about the cost of land, inputs, wages, harvesting & delivery costs.

But the cost of testing food, storage costs while food awaits results and of course product that is discarded if test results are not conclusive, are all major costs that food companies must face and build into the price.

New Zealand has had such a good reputation as providing safe food, thats because its so easy to stuff up. Other countries have stuffed up.

Hopefully all businesses in New Zealand can learn from this. 

I get sick of hearing small business people complaining about the amount of regulation that they must pass in order to provide food to the public. Sure, it may be hard and tiresome, but the costs of getting it wrong are too great for our little country. 

Food safety is our competitive advantage, so we must protect it. 

Monday, October 7, 2013

On Farm Productivity Is Good, But The Big Money Is Made From Off Farm Productivity

Theres a lot of talk about productivity in New Zealand these days.

But are we focusing on the right areas?

The government has set a target of doubling the primary sectors export earnings from $32 Billion to $64 Billion by 2025.

Nobody doubts that this is a difficult ask.

New Zealands primary sector has a strong record of productivity gains.
The sheep industry alone has increase productivity (expressed as meat sold /ewe) by 80% over the last 25 years.

Thats 2.5% productivity gain every year. Any business analyst will agree that that is impressive.

But are sheep farmers any better off?

Despite 20 years of productivity gains sheep farmers recently experienced their lowest level of profitability, according to Beef & Lamb NZ data.

New Zealand farmers are very good at on farm production productivity, such as milk solids/ha or meat/ha or tons of grain/ha.

But its the off farm productivity that needs some serious work and that is where the big gains are available.

Rod Oram is a business journalist and he gave a very good example recently.

Fonterra has a total asset value of $4 billion.

One Fonterra plant manufactures infant formula for Pfizer, the pharmaceutical company.

Pfizer's infant formula business has an 8% share of the Chinese market.

Recently Pfizer sold that business to Nestle for $12 billion! Thats three times the size of Fonterra's entire business!

So, Fonterra supplies the milk, manufactures the milk into infant formula and packages the formula into tins.

Pfizer puts its branding on the tins and wholesales the formula to retailers. That part of the value chain, the branding and the wholesaling is worth $12 billion. 

Fonterra or New Zealand farmers receive a small portion of the value of the final product.

You could say, if Fonterra owned that formula brand which has an 8% market share and took the formula right through to the retailer. Then Fonterra would be worth its current $4 billion + $12 b to be worth $16 billion dollars!

I think you could say that the payout to farmers would also be three times its current rate. 

How does a $21/kgms payout sound?

We could put it another way, if Fonterra was just that one factory and all it did was produce infant formula for 8% of the Chinese market under its own brand. It would be worth three times what all of Fonterra is today.

New Zealand is very good at producing quality product, but not very good at keeping paid for it.

The graph below is from a Corileus report that they have made public. As you can see Fonterra is one of the largest dairy companies in the world from a volume perspective. Pfizer is way down the bottom by size. But Pfizer's dairy business makes a hell of a lot more money than Fonterra does from its products.

The graph below shows the profitability of the different dairy companies.

Fonterra is making a 4% return on Asset, while Nestle, Kraft, Danone which have their own retail brand products are making 14%-15%.

The nutritional dairy businesses which deal with infant formula etc are returning well over the 25% right up to 65% return on assets for BMS Nutritionals! 

These graphs are exciting, they show that Fonterra has plenty of room to increase profitability.

Fonterra have been saying that their "strategy refresh" will focus on increasing the value they receive for their products.

Last year Fonterra announced that they are launching their own branded infant formula into Asia. Which is a good start.

What will Fonterra look like in 10 years? Imagine if Fonterra is successful in growing the portion of its business that is branded. 

The increase in profitability is potentially huge. 

Some of the thoughts that are going through my head are:

  • How will a more profitable Fonterra affect land use change? If dairy returns are much greater than sheep/beef while Fonterra operates at the commodity level. How can other land uses compete with a payout of over $15/kgms?

  • Will the payout actually increase in line with profitability? You assume it would.

  • What will Fonterra shares be worth? Assuming greater profitability increases the dividend paid.

  • What will happen to land prices?

  • What environmental impacts will this have on New Zealand?

What ever your views of Fonterra or the dairy industry are, you can't deny that the future is bright for New Zealand dairy farmers and the flow on will benefit the whole NZ economy.

But the same challenges still exist for the industry such as public perception, environmental impact and staffing issues.

Wednesday, August 7, 2013

To Change Perceptions Farmers Need To Connect

It's a perception Issue

I often hear people in the agricultural sector say things like "We need to remove the emotion from the issue" or "It's a perception problem".

We will never remove emotion from decisions, because everybody forms judgments based on their emotions, past experience and prejudices.

People make snap judgements

Malcolm Gladwell wrote a book called "Blink". In his book he outlines research that shows people make judgements on a person, product, brand based on very small amounts of information.

He says that once a judgement has been made, a person is unlikely to change their mind.

The only way to change a persons opinion is to connect with them

In the video below I discuss 2 examples. One is of Village Milk and the other is Fonterra & their new light proof milk bottle.

Farmers need to put themselves out there, people what to know about farmers and their businesses. 

So, I'm encouraging farmers to start blogging, make videos or sign up to some form of social media.

Get your stories out there, show people what you do.

Because the perception of farmers or farming is not going to change unless farmers connect with the public.

Monday, July 29, 2013

Reduce Nitrate Leaching With The Mobile Milking System

Unconventional ways to reduce nitrate leaching

Part 1 
A few weeks ago I explained how agroforestry is a farming system that is able to reduce nitrate leaching.

Part 2
Today I will talk about how a dairy farming system based around a mobile cowshed is able to reduce the level of nitrate leaching.

A traditional cowshed is in a fixed location. The cows have to be within walking distance of the cowshed because they need to get milked twice a day.

The main cause of nitrate leaching on dairy farms in the cows urine patch.

For this reason, the cows are always grazed on the same block of land surrounding the cowshed.

What this means is the cows are rotating around the same block of land every 15-30 days, urinating  on the same paddocks month after month, year after year. 

By making the cowshed mobile, we also make the herd mobile and that allows the cows to move to other blocks of land throughout the year.

Essentially spreading the urine/nitrogen over a larger area and therefore reducing the concentration of urine on each single block of land.

It's a totally different farming system, but could be one method farmers use to reduce their nitrate leaching levels.

Monday, July 15, 2013

How A 750 Cow Dairy Farm, Could Make $125,000 More By Employing 2 Extra Staff

The Small Things Make A Difference

Ive been using a 750 cow farm (Canterbury average) as an example. I have been saying that this farm should have 5 employees + the boss, instead of the usual 3 employees + the boss.

2 extra staff @ $35,000 each = $70,000/year extra wages

But if this farmer could:
  • Increase fertility by 7% = extra $32,000
  • Decrease SCC in just 5% of cows = $30,000
  • Increase pasture quality by 10% for just 31 days = $63,000
Thats adds up to an extra $125,000

Subtract the $70,000 in additional wages = $55,000 better off.

By employing 2 extra staff, could this farmer:
  • Train staff better
  • Retain staff for longer
  • Reduce hours worked by each employee
  • Have less stressed staff
  • Have more engaged staff
  • Attract better quality employees
By attracting better people who are more engaged, better trained and generally less fatigued. Farmers are able to make lots of small improvements across the whole business.

The figures used here are examples of average performance being increased slightly. The productivity gain will be much greater foe farmers performing at below average.

6 Week In Calf Rate

"It's really easy to miss one cow on heat or miss a retained membrane after calving etc when staff are tired or rushed or not aware of all the things that contribute to a successful mating"


"Depending on what your cell count is and what the payout is, there's around $20,000 to $40,000 sitting there if you could just work on 5% of your herd"

Pasture Quality

"You don't have to spend any extra money to get that; you're using the pasture you've already got, but we're just assuming you can do it a little bit better for one month of the year"

These figures are just hypothetical and based on assumptions. Before I get jumped on by people claiming I should have used $6/kgms rather than $7/kgms or that fertility figures should be $100/ha rather than $115/ha etc.

I'm just using some data that is easily found to illustrate a point that small gains added up make a big difference. 

Likewise, small losses add up to make a difference too. 

When I read figures showing:

 I'm sure many farms are missing out on profit.

You know, this is the last time I'm going to talk about dairy farm staff, but I just want to make one last point and it's that the small things make a difference, they all add up. And, you know, I've been saying a 750 cow farm really needs an extra two staff, so that's an extra $70,000 a year. So, that's a lot of money, but I think if we just concentrated on three KPI's, or parts of a dairy farm, and if we assume that a farmer was at an average level of performance and they could make a slight increase on each one of those three areas, that they not only could cover their extra $70,000, but they would make an additional $50,000 as well.

                  So, the first thing I want to talk about fertility and the average six week in-calf rate in New Zealand is 65%. So, Lincoln University did some work and they increased the six week in-calf rate by 7%. And they said that was worth an extra $115 per hectare in operating profit. So, if we times that $115 per hectare by 277 hectares, which is what your 750 cow farm is. Then that's an extra $32,000 in profit. And that 7% increase is worked out to be 52 cows. You just need to get an extra 52 cows in calf over that six-week period, which is 42 days. So, that's 1.2 cows in calf and I'm saying if you had those two extra staff, would you be able to train your staff better and would you be able to do that?

                  So, the second thing is mastitis. Now, Livestock Improvement Corporation tell us that 5% f your herd attribute to 50% of your bulk somatic cell count. So, that works out to be 37 cows. And, they tell us if you drop your, or if you have an average cell count of 212,000 and you drop it to 150,000, that works out to be worth an extra $31 per cow. So, times that by 750 cows and that's $23,000. DairyNZ have some slightly different figures and they tell us if you could drop your cell count from 300,000 to 150,000, that's worth an extra 15 cents per kg of milk solids. So, on a 750 cow farm, that works out to be around an extra $45,000. So, depending on what your cell count is and what the payout is, now, there's around $20,000 to $40,000 sitting there if you could just work on 5% of your herd.

                  So pasture quality is the third thing. DairyNZ tell us that if you could get a 10% increase in pasture quality, that correlates to an extra 0.4 kgs of milk solids per cow per day in production. So, times it by 750 cows and that's an extra 300 kgs dry matter, sorry, 300 kgs in milk solids per day. And, let's just assume that you can get that 10% increase for just one month of the year, so 30 days. So, that works out to be an extra 9,000 kgs of milk solids. Times that by $7 payout and you're looking at an extra $63,000. And, you know, you don't have to spend any extra money to get that; you're using the pasture you've already got, but we're just assuming you can do it a little bit better for one month of the year.

                  So, let's add all this up. If you take a 10% increase in pasture quality for just one month of the year, that's worth $63,000. Concentrate on 5% of your herd and drop your cell count down to 150,000, that's worth $30,000 a year. If you can increase your fertility by 7% , that's $32,000 a year. Add that all up and that's $125,000 in additional profit or income. Minus your $70,000 for your two extra staff members, and you're still ahead by $55,000 a year.

So, I'm saying, with those extra two staff, would you be able to have a staff that are more engaged? Would you be able to train them better? Would they, would you be able to retain them? Would you be able to attract even better people to your farm? Because all you need to do, is make, you know, a little adjustment over those three areas, and you make your money back. What if you did over five or six parameters on your dairy farm? So, I think it's a false economy to understaff our farm

Friday, July 5, 2013

Agroforestry Systems Can Reduce Nitrate Leaching By 50%

Following on from Mike Barton's presentation to Beef + Lamb NZ, about farming under a nitrate cap. I thought I'd look at some less conventional ways farmers can reduce nitrate leaching.

Today I want to discuss Stephen Briggs Nuffield report into Agroforestry.

The report shows how an agroforestry system can dramatically reduce the amount of nitrate leached from a farming system.

It's a pretty radical change, but maybe the pasture based dairy farm of the future will include 100 trees/ha as well as cows.


Glen Herud here again and I'm blogging from my van today because I'm struggling to find time to blog. I still want to blog, but the only time I have to myself is when I'm stuck in Christchurch rush-hour traffic for 30 minutes every morning. 

So, I know I'm a bit weird.

I posted a video of Mike Barton last week about how he farms under a nitrogen cap. Heres the link to the full video on the Beef + Lamb NZ website. I recommend you watch it. 

But this is what he had to say:
"We leach 93% of the manageable nitrogen that's going into the lake. We wanted it to be all the batches and the septic tanks and the town and whatever else you could hope for. It wasn't. It was us."

You know, I think it's just a matter of time before all farmers will have to farm under a nitrogen cap. And whether that's right or wrong, I don't know. I just sense that the movement is towards that. 

When you look at the changes on the Horizons District Council, what's happened in Taupo. Canterbury is talking about it. Southland is talking about it. You know, I just get the sense in 10 to 15 years time, that's where we'll be.

And I don't think farmers are really thinking radical enough about how we could change our farming systems. I'm sure farmers understand how big the effect will be on their farming businesses. They understand that. But I think we need to really think about how we're going to farm under that, rather than spend all our energy on fighting it. Because I think it will happen, as Mike Barton said.

Now, one radical system, I'm going to cover a few radical ways that we could farm cows over the next couple of weeks. 


And I want to talk about agroforestry. The reason is that agroforestry has been shown to reduce nitrate leaching by up to 50% over a monoculture system. Now, Stephen Briggs is a Nuffield scholar from the U.K. and he released a report on agroforestry last year. And I'll put a link to it, it's really good.

But, what you do is you really combine trees with agriculture. So, they could be nut trees, fruit trees, timber trees and they could be cropping. Could be dairy, whatever. And what you do is you plant them in lines, you have about 100 trees per hectare. And you farm within the alleyways.

Now, the reason it reduces nitrate so much is that the tree roots will grow down deeper. And they go in underneath the alley crop and they join up in the middle. That creates a kind of a safety net. So, any nitrate that drops out the bottom of the agricultural system gets absorbed by those trees. Therefore, you have a much lower rate of nitrate leaching.

So, there's a lot of other advantages. For instance, shelter. Also, agroforestry systems have shown to have 30% reduction of evapotranspiration rates. So that means that you're losing less water out to the atmosphere. Which is probably pretty good for Canterbury farmers that particularly, when you think about our howling nor'westers in the summer. But it's not all plain sailing. Shading is an issue and Stephen talks about how to overcome shading and the research done on that.

I know Lincoln has done some research into agroforestry and they showed that, after 15 years, their pine trees have totally shaded out their alley crop. So, we don't want that to happen. There needs to be a bit more research done into it. But, you know, it's a radical way of doing things. I mean, imagine if your average dairy farm sort of looks like this and imagine just planting that full of trees. Planting thousands of trees in your most productive land. That's a pretty radical thing to do.

Now, these are the sort of things I think we need to start thinking about if we're going to have a dramatic effect on our rate of nitrate leaching. And of course, many people, many farmers, don't think we need to. 

But as Mike Barton says in his presentation, 'If farmers don't come up with the solutions, some bureaucrat in Wellington probably will.' And it's much better that farmers come up with solutions than someone else. 

So, I'm just going to throw out some real wacky, way-out sort of things that maybe we need to consider to reduce our environmental impact.

Thursday, June 27, 2013

Mike Barton-Beef Farming Under a N Cap. This Video Will Scare The Crap Out Of Dairy Farmers

Mike Barton gave this talk to the Beef & Lamb NZ Farmer Roadshow in June 2013. 

It is a real eye opener & Mike explains in detail what farmers in the lake Taupo catchment have had to change in order to meet the Nitrogen cap put in place by their regional authorities.

Thanks to Beef & Lamb New Zealand for making it publicly available.

A quick summary

Mike has had to cap his nitrogen leaching & production to 2004 levels.

He can't change his beef farm to dairy for example, therefore he has also given up any real capital gain on his land.

He has to farm for cash flow not capital gain.

  • 20% of catchment area is in Pastoral farming, 69% is in forest.
  • Possible many other regions of NZ will be the opposite! (69% pastoral & 20% forest)

  • Farming responsible for 93% of manageable Nitrogen
  • 6 farms were modelled for the environment court-Insolvent in 5-9 years
  • Production is capped at 2004 levels
  • Since then costs have increased by 48%
  • Mike assesses his productivity in profit/kg of Nitrogen leached. That is the only way he can increase his profitability.

Mike stated, New Zealand farmers can not continue to sell our product for less than it costs to produce.

New Zealand farmers have not been taking into account the environmental cost of our production. 

New Zealand farmers need to stop being commodity sellers, they need to stop worrying about production and start to concentrate on selling high value products, and more importantly retaining as much of the value as possible.

We need to find low N dairy systems

The reason I am working hard to investigate dairy farming systems that leach very low amounts of Nitrogen is because the day will soon be here when farmers of all descriptions will have to account for the nitrogen leaching out of their farming systems.

I get the feeling it will not matter which flavour of government is in power, the trend is clear.

The Horizons One Plan is the latest instalment and it is only a matter of time before similar plans hit the rest of the country.

I'm planning now, for a profitable farming future. Where my cows will have to leach much less Nitrogen.

Sunday, June 9, 2013

Dairy Farmers Spend 66% Less Than The Average NZ Business On Wages


G’Day, Glen Herud here again.

I’m going to carry on talking about dairy farm staff. I’ve got some statistics for you. 

Wage to Revenue Ratio

  • NZ Average                             21%
  • Dairy Farm (Owner/operator)     7%

Statistics New Zealand have released some data, and they’ve said that the average New Zealand business with a turnover, greater than $700,000 per year spends 21% of their turnover on wages. The dairy industry, on the other hand, spends 7% of turnover on wages. 

If these 2 businesses had $1 million turnover, these guys would be spending $210,000 a year on wages, and the dairy farm is spending $70,000 on wages. 

This backs up what I’ve been saying, is that the dairy industry is under-investing in staff.

I Think a 750 Cow Dairy Farm Needs To Add 2 Extra Staff

If we take our 750 cow dairy farm, which I’ve been using as an example, now we have 3 staff on there, plus the boss, so there’s 4 people on the farm. 

I reckon we actually need 5 staff plus the boss. I think we need to add an extra 2 people onto this farm. That’s not going to be cheap, that’s going to be an extra $70,000 per year on wages. If you look at that from a percentage of turnover, if they add $70,000 to their wage bill, they’re still only spending around 10% to 11% of their turnover on wages, which is about half of what the New Zealand average is. I think that’s still quite acceptable.

How Would I Staff a 750 Cow Dairy Farm

How would I setup this dairy farm so that it could attract and retain good people? This is how I would do it:

I would start with a Monday-to-Friday work week. I’d get rid of these rosters that you have, like 6 days on 2 days off, or 9 days on 3 days off; whatever like that. I’d have a work week from Monday-to-Friday. 

You’d need around 2 people to milk in the morning. That would start at 4:00 a.m. They’d have their breakfast at 8:00 a.m, after milking, they’d go through and have lunch at 1:00 p.m., and that’s the end. They’re done for the day, they’ve done 8 hours. You start early, you finish early. 

You get another 3 staff, and they’d start at 7:00 a.m. Get up, have breakfast, go to work, 7:00 a.m. Have lunch at 1:00 p.m. or maybe 12:00 p.m., and then they finish up after milking at 5:00 p.m. They’re working around a 9-hour day. That’s how I would do it.

Basically, we’ve got 3 people on the farm from 7:00 right through to 5:00. Between the hours of 9:00 a.m, through to 1:00 p.m., you’ve got 5 people on the farm. You can get a heck of a lot of work done. There’s no excuse for not having everything perfect on your farm. 

Of course, you’ve still got the boss, who’s also floating around, out here. You’ve also got to bear in mind that if you’ve got 5 staff, you’ve got to give them 4 weeks annual leave every year, so that’s around 20 weeks. For around half of the year, one of these staff members is going to be on holiday. I still think that’s quite an acceptable staffing ratio on a farm that size.

What about the weekends?

I reckon you only need 2 people to milk. Because you’ve got 2 people milking, all you want to do on the weekends, I believe, is just milk. 

On the Friday afternoon, everyone should be setting up the farm so there’s nothing else to do on the weekends but milk. The effluent irrigators moved, the brakes are moved, I’d even feed out silage on Friday. I’d feed out Saturday and Sunday’s silage on the Friday, and deal with all lame cows, all those things get done on the Friday.

On Saturday and Sunday, the 2 guys who are milking, all they’re doing is milking. Go home after breakfast; wait around under afternoon milking & milk.

Only Work Every 3rd Weekend

You’ve got 6 staff, because essentially, you’ve got 5 staff plus the 1 boss; that means you only work every third weekend. Essentially, you work Monday-to-Friday, a 40-hour week, roughly, have 2 weekends off in a row, then you work the third weekend, and then you have 2 weekends off in a row. Those are the sort of conditions that are going to be appealing and attractive to all workers. 

I think if we offer those terms and conditions, we’d be able to pick the best people and be attracting and retaining great people into the dairy industry, as opposed to scraping the bottom of the barrel, which we seem to be doing at the moment.

That sounds all wonderful though, but there’s a big but: How are you going to pay for an extra $70,000 a year? There will be farmers out there with 750 cows in Canterbury saying, “There isn’t $70,000 sitting on the bottom of my budget.” 

That’s what I’ll talk about next time.