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

Transcription:

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.

Nitrate Leaching Overview

Today I give a overview of nitrate leaching.

What is Nitrate Leaching?

What type of farming leach the most Nitrate?

How nitrate leaching from dairy farms is different from cropping & horticulture.

Well, gidday. My name is Glen Herud and today I want to talk about nitrate leaching and basically just give you a run-down on what nitrate leaching is about, and then later on I am going to talk about how we can start farming systems that have low rates of nitrogen leaching.  

Weed & Algae need both Nitrogen & Phosphorus in Order To Grow

So basically, if we look at water quality issues we've got two things. We've got nitrogen and phosphorus and what causes algae blooms and sort of algae build ups in our waterways.  What happens is if you have just phosphorus, pretty much nothing happens. If you've got just nitrate in the water systems, then pretty much nothing happens as well. But if you've got the two together, that's when these algae growths take place.  So, I won't worry about phosphorous today but we'll talk about nitrate today.

Who Leaches the Most Nitrate?

So, a few figures are that if you're a veggie grower, if you're a market gardener, the statistics show us that you will leach around 177 KGs of nitrogen per hectare per year.  If you're a cropping farmer, that's weeds and those sorts of things, you'll do 61 KGs per year.  If you're a dairy farmer, you'll leach around 65 KGs a year. If you're a humble old sheep farmer, you'll do 21 KGs of nitrate per hectare per year.  What that means is that basically this excess nitrogen filters out of those farming systems. and it's basically draining out the bottom of the soil.  When you look at cropping and these veggie growers, basically they are as a result of excess fertilizer, basically nitrogen fertilizer. They put a heap of fertiliser on and that fertiliser is going through the soil profile. 

85% of Nitrate Leaching From Dairy Farms Comes From Urine

But the dairy industry is different.  85% of all nitrates or excess nitrate from dairy farms is from urine.

So that's not urine from cows standing in a river urinating

and it's not from the urine in dairy effluent either

But every time we hear about environmental impacts from the dairy industry, that's all we hear about.  But they are not actually the issues. 

The main one is cows standing out in the paddock, urinating

Urine Patch Contains Equivalent to 800kg Nitrogen per Ha

Here's what happens. Basically, here is a cow. This is a bit of a funny cow.  She's a Friesian so what she does is she urinates into what you call a urine patch, which is about the size of a dinner plate. Within that dinner plate, there are 800 KGs of nitrogen per hectare. So there is an equivalent to 80 KGs of nitrogen per hectare. So the way I think of that, to make sense of it is if you take a hectare, which is a football field and let's say we had a way of getting all these cows lined up so they all urinated at once and all the urine patches covered one whole hectare.  If they all urinated at once, that would be applying 800 KGs of nitrogen per hectare at once. 

Average NZ Dairy Farmer Applies 150-200kg Nitrogen per Ha per Year

To give you an indication of how much that is, your average dairy farmer does around 150 to 200 KGs of nitrogen per hectare per year.  They will do that over multiple small allocations of fertilizer.  So, what I want to sort of get through to you is that there is a heck of a lot of nitrogen in a urine patch.  What happens is that if you think about grass. I don't know, what we got? Five, six, seven grass plants within a urine patch? They've got their roots systems that go like that, probably around 30 centimeters deep.  So what happens is the nitrogen comes in via the urine and while it's in the soil it turns into nitrate.  It can be absorbed by the plants.  If you look at this picture here, you can see these dark green patches in the paddock there. Those are fertility patches.  They are either feces patches or urine patches. What's happened is that those grass plants there, have as much nitrogen as they can get and they've bolted away and they are nice and dark and green. 

The Few Grass Plants in a Urine Patch can't Absorb all the 800kg of N

The problem is that there are 800 KGs of nitrogen being applied. Well, a heck of a lot of nitrogen will be applied and those few little plants, there is absolutely no way they are going to be able to absorb all that nitrogen. There is far too much.

What happens is the nitrate attaches to water molecules, H2O, because nitrate is soluble in water.  Those water molecules filter down through the soil profile and drain away and they take the nitrate with them. Once they get below the roots’ depth of the plants, they can't get absorbed.  It keeps on going, all the way down, until it gets into our groundwater. Then it ends up in our waterways.  So that is very simply how nitrate leaching takes place.  Essentially, excess nitrate that isn't absorbed by the plants ends up filtering through the soil profile and getting into our groundwater. 

There are a couple of things that affect the rate of nitrate leaching.  One of them is your soil profile. If you've got nice, well I shouldn't say nice, if you've got free draining soils that are kind of rocky, the water flows through those soils much more quickly.  So, obviously the nitrate flows through quicker. If you've got heavier clay soils, then the water sort of sits there more and therefore the nitrates sits there more.   The amount of water in the soil profile affects the rate of nitrate leaching. What happens generally is during the summer lots of nitrogen is sort of applied and it sort of sits there in the soil and then winter comes along and we get all this wet weather and it all sort of leaches out through the winter.  What's the other thing that affects nitrate leaching? Oh, your plants, your root depths. If we can get plants that have twice the root depths, then there are obviously twice as much time for them to absorb nitrate. That's a very brief rundown. It will probably horrify a few scientists but that sort of serves the purpose of what we need to explain today. 

So the next little while I'll start talking about how we can farm differently in ways to reduce our nitrogen leaching cap or nitrogen leaching rate. If you have been following the news you'll see that regional councils are starting to sort of propose nitrate caps, so saying that you can only leach around 25 KGs of nitrogen per hectare per year.  Obviously, if you are a potato grower, they would horrify you and dairy farmers are equally worried about how they are going to be able to farm and meet that sort of a target. That's what I want to talk about in the next couple of weeks.

Dairy Farm Staff And The Shocking Rate Of Employee Turnover

In this video I continue to discuss dairy farm staffing issues. I reference three reports into dairy farm employment.

The first is a report by Dairy NZ called Smarter Not Harder, Improving Labour Productivity in the Primary Sector

The second is a report written by Gillian Searle in 2002 called The Reality of a Career in the Dairy Industry, An Employee’s Perspective


These two reports found that:

• 50% of dairy staff have been in their current job less than 1 year
• The average length of service for a dairy farm employee is less than 1 year
• 1/3 of dairy staff leave the industry every year!

The third report written by Richard Kyte's "A different approach to staffing in the dairy industry" attempts to show that increasing staff numbers actually increased his farms productivity and profitability.

Transcript:


Well, gidday. Glen Herud here again and I am going to carry on talking about dairy farm staff. Last time I said that only a small percentage of New Zealand population are prepared to work on a dairy farm simply because of the long hours involved. 

Today I want to talk about a report that was released by Dairy NZ in 2009 I think, called “Farming Smarter Not Harder.” They had some interesting figures.  

• They said that 50% of staff had been in their current job less than one year.  

• The average length of service, so that's the average time people stay with an employer was less than one year. 

• 1/3 of dairy staff leave the industry every year.

These figures are also backed up by a report written by Gillian Searle way back in 2002, and she found that 59% of staff that she surveyed had been in their current job less than six months. 
These are figures from the dairy industry. These aren't figures from an anti-dairy group. These are their own figures. This shows a horrendous amount of staff turn-over. I can't even imagine trying to run a business where the majority of your staff aren't there for a full year. There is no continuity or anything.  So, these figures surprised me quite a bit. 

Average Staff Turnover in NZ is 20%. NZ Dairy Turnover 40% 

Now, take a look at this graph. This is from the “Working Smarter Not Harder” report.  If you look at the bottom line there that's the New Zealand average around 15 to 20%. This is for staff turn-over.  The blue line at the top is the staff turn-over for the New Zealand dairy industry. As you can see, it fluctuates wildly from down 25% up to 40%, and it's exactly the same every single year.

If look there, September seems to be the time where everything peaks and it's no surprise to me that September is right at the end of calving after people have worked for two months, doing 60-70 hour weeks; they leave.  

750 Cow farm has 4 staff

If we look at what it looks like at a current dairy farm, if you've got 750 cows here in Canterbury. I've said last time that you have about one staff member to 180 cows. So that equals four staff.  Another way of looking at it is one staff member to 75,000 KGs of milk solids. If you have 750 cows doing 75,000 KGs of milk solids that equals four staff. That equals 300,000 KGs divided by 75,000 equal four staff. Essentially that is three employees and one boss. 

So what does that actually look like actually on the farm? 

I am assuming we've got a 60 bale rotary with automatic cup removers and centre pivot irrigation.  Two staff are going to be required to milk and they'll start at 4 am. They go 5,6,7,8,9,10,11,12pm, 1, 2, 3, 4. They'll go through to 5p.m. 

They will have lunch at one and breakfast at eight for an hour.  So that's an 11 hour day. Essentially, one person is always going to be off because they'll have their rostered day off. Depending on what the roster is, it depends what part of the week you have a full complement of staff, but generally speaking you're only going to have two staff plus the boss. Maybe the boss starts at seven and this will probably rotate around. But anyway the third person starts at seven and they'll go right through to five p.m.  So, basically they've got to milk twice a day and they've got to do other jobs.  

750 cows & 4 staff is fine, as long as nothing goes wrong

So having three people on the farm with maybe a relief milker helping out, that sort of works when everything is going well, when the weather is dry, when nothing is broken, where everything just goes according to plan. But as soon as something happens, like what if one of these guys here gets sick? All of a sudden that puts pressure on everyone else. Or if they just don't turn up which is often the case. As we've just seen, the massive staff turn-over rates, you can see that people are leaving all the time within the dairy industry. When someone leaves and you've got this staffing level, it puts pressure on everyone else. Everyone else is already working hard. They are already doing 11 hours a day, and if someone leaves all of a sudden that just puts a heck of a lot more pressure on them.  

Richard Kyte, "A Different Approach To Staffing In The Dairy Industry"

So, I want to talk to you about this report.  Richard Kyte, he was a sharemilker in Southland and now works for the Dairy NZ and he's also a consultant. He wrote this report called, ”A Different Approach to Staffing in the Dairy Industry.” His introduction says, "I believe that the New Zealand dairy industry is being compromised by understaffing on farms especially larger units of 600 cows or more. This has become a significantly greater problem in the last ten years and specifically on the South Island with larger farms." 

He goes on to say, "As the dairy industry grows, to maintain this growth it must attract and retain people within the industry. To do this, the dairy industry must compete with other industries". 

And that's what I was saying last week, dairy is competing with other industries. He goes on and he references Rupert Tipples from Lincoln University and Rupert says that 64% of dairy staff work 50 hours plus.  That's compared to 17% of the general population who work 50 hours plus.  

Richard also talks about Peter Sheehan who is a gen Y specialist. You should Google him. He's got some videos out there. He basically made the comment, "If the dairy industry thought 12 days on, two days off was a good roster it needed to get real. As five days on, two days off was the benchmark." He went on to say, “He's extremely surprised that dairy workers even accepted this.”  Richard goes on to say. “If five days on and two days off is the benchmark then 40 to 45 hour week is also a benchmark the industry should look for.". This comment is interesting. "The drive to reduce hours to date has been mainly from professionals looking in at the industry not from farmers themselves." Ain't that the truth!  

Richard added staff which cost $50,000, but increased turnover by $91,000. $41,000 more profit

So, the gist of what Richard was saying was that he went on and he decided he's going to spend an extra $50,000 dollars. When he was sharemilking on a 600 cow farm, he added an extra labor unit which cost him $50,000 dollars.  As a result of that, he had more time to manage his pasture, so he used the pasture plus system. He had less culls, less lame cows, less mastitis, and as a result of that he brought in an extra $91,000 dollars in extra income and savings. So $95,000 minus $50,000 equals $41,000. So he's still ahead by $41,000 which is about a 80% return. So he spent 50 grand to make an extra 41 grand profit. He spent more money to make more money. 

This is the whole thing, I think the level of staffing we've currently got is a false economy.  I think people think that four staff working on a 750 cow farm is the standard, it’s the benchmark.  But I think that you are losing money in all other aspects of your dairy industry. 

So, the interesting thing about Richard's farm is that he has a staff turn-over rate of two and a half years. So that means that his staff stays with him on average two and a half years and they move on basically because they want to progress in the industry, not because they want to leave dairying.  

So next time I am going to talk about how I would run a 750 cow farm and how I propose to pay for it.

Why Only A Small Number Of People Will Consider Working On A Dairy Farm

There are 60 new dairy conversions going into Canterbury this year. In This video I discuss how this equates to an extra 250 dairy staff been required, and why most "townies" won't even consider a job on a dairy farm.

I'm surprised by the extra staff required, but the numbers seem to be logical.

Please comment if you feel I have got something wrong.

You Tube link http://www.youtube.com/watch?v=UaSu1NRWwQU

Transcription

60 new dairy conversions in Canterbury for 2013 season

Hey, well I want to talk about dairy farm employment issues. So staffing, of all the issues that the dairy industry face, finding people to milk the cows is the biggest issue. So I was talking to a cow shed manufacturer. He said there's 60 dairy conversions going into Canterbury this year; and those are new dairy conversions. 

60 conversions x 750 cows (cant avg) = 45,000 extra cows into Canterbury 2013

Now the average herd size in Canterbury is 750 cows, so 60 times 750 equals 45,000 extra cows coming into Canterbury this year alone. That's not including Southland or the rest of the South Island; 45, 000 new cows into Canterbury. 

1 employee : 180 Cows. 45,000 cows / 180 = 250 new dairy jobs required

Now, there’s a rule of thumb, that you need around 180 cows to one labour unit. So 45,000 divided by 180 equals 250 new jobs. So that's actually really good news. We hear a lot about job closures and job losses, but the dairy industry has been charging away for a good part of a decade. Adding a heck of a lot of new jobs to the economy every year.

Where are these extra employees going to come from?

The problem is where are all the people to come from to milk these extra cows? Now traditionally for the last ten years at least, dairy farmers have been employing Filipinos and Brazilians and other international employees to fill the gap.

I was talking to a guy and I said to him - or he said to me, why can't the dairy industry attract all these people from town? And I said because of working condition. Its the hours of work. And people who have read my blog will know what I think about that . And he said, "I don't" -- he didn't except that anyway. He said, "No, no there's are plenty people who will go and work those different hours." And he mentioned people who joined the army and go on fishing trawlers and all sorts of things. So I had a little think about things and I have came up with a theory.

So if we draw a standard old bell curve, I would say that the people who fit into there, these are your 40 hour a week people. That's a majority of the population. A big chunk of people fit in there. People who go to work on a dairy farm are smaller, with much less of a number of people. And I am going to call it 60 plus hours. 

How many "townies" would apply for a "town" Job, if the hours were 4am to 5pm, 9 days on 3 days off?

Now, I'll tell you why I think that. I, as I said before I employ people myself and I run an ad in the paper that says " Customer Service Rep Monday to Friday, 9 AM til 5 PM," and we get heaps of response. And I can be quite picky of who we employ.

But if I put an ad in the paper and said "Customer Service Rep required, 4 AM to 5 PM, 9 days on, 3 days off," they wouldn't even bother applying. Its just totally unacceptable to them, they just couldn't even imagine starting at four in the morning, working all the way to five o'clock in the afternoon and doing that for nine days in a row, then give you three days off.

Its just not - they're not even going to considered it. So these are the people here who wouldn't even consider that. 

Now the number of people who will consider that are much less, a much lower number of people I'd say, about half the of number of people would consider that. 

No surprise, Dairy Farmers struggle to attract and retain staff

And it's absolutely no surprise to me at all that dairy farmer's cant find staff because there's better options. They can go building and start at seven in the morning or eight in the morning.

Dairy industry must provide 40-45 hour weeks

So I believe if the diary industry want to get serious about actually solving their staffing issues, I think they need to move the conditions over to the centre here. So the dairy farm staff need to start working 40-45 hour weeks, and regular weekends off, not just rostered days off. 

In the next video I'm gonna talk about what it would look like for a dairy farmer to transition their staff from sort of the 60 plus hours per week over to the 40 plus and what its gonna cost them. 

And I guarantee you right now, if the dairy industry could do that the majority of the staffing issues will just go away. ...

I've Got A Job!

My blog has been a little neglected lately. 

We have sold our house and bought a 4 ha lifestyle block. We moved into a rental two weeks ago and we will be living here while we build a new house on our farm lifestyle block.

Mrs Herud fired me last month and I no longer hold the position of "house husband", due to poor performance on my part.

I have now started a new job at the Community College in Rangiora. The college is starting an agriculture course aimed at 16-17 year olds who are not doing well at school or are simply not going to school any more.

My job is to develop an agricultural based course that will engage these young people, give them confidence and boost their self esteem, while also showing them what a great opportunity farming offers them. I also need to get them to pass NCEA!

There has been much talk recently in the media and on blog sites about youth unemployment in New Zealand. There are stories of businesses who can't find staff for entry level jobs, we hear about young people turning up to job interviews with disgraceful attitudes who are simply unemployable. 

I don't deny that these reports are true. In fact, I'm an employer too and I have first hand experience of employing generation Y and I have seen some terrible job applicants over the years.

I'll be dealing with kids who may have come from rough families with bad role models or kids who simply don't fit into school.

I'll keep you updated with my progress. The college are pretty open minded and I've got some pretty cool ideas on how we can put together a course that puts the funk into farming.

I'll also report back with my findings on the state of our young people in NZ and we'll see if I can make a difference.

The Sheep Industry Out Perform Fonterra. True Or False?

Sheep farmers receive 44% of the retail price of their products. So if a portion of lamb retails for $100 the farmer will receive $44.

The sheep industry is struggling with low profitability. The last 20 years has seen sheep farms converting to dairy because they offer a higher return.

Among sheep farmers, there seems to be an attitude that their meat companies are doing a poor job of marketing & selling lamb, both domestically and internationally.

There is a cockiness among dairy farmers around the returns the dairy industry are making. They seem to think the reason for the industries success is because they have an outstanding level of awesomeness and that the people running Fonterra posess superior business acumen, compared to the sheep industry.

I often hear both sheep and dairy farmers comment that, if the meat industry could just replicate Fonterra, then the industry would be a success.

Please take the time to listen to this 5 minute radio segment from The Framing Show. It's worth it.

Every Friday, dairy farmer Jason Uden & sheep farmer Jeremy Rookes discuss the topics of the week. There is no clearer example of the difference between sheep farmers and dairy farmers than these two.

Jason is a stereotypical dairy farmer, he has the high pitched voice with the Waikato dairy farmer accent. But the thing that stands out the most is his confidence that the reason for dairy farmers success, is their talent combined with Fonterra's superior performance.

Jeremy Rookes would sooner go broke than don the blue overalls and gumboots, which tend to be the dairy farmers uniform. Milking cows would go against his principles. Jeremy feels that the sheep farmers are doing all they can "on farm" and are being let down by the meat companies.

These two farmers pretty much represent the attitudes of their respective farming groups.

How does the sheep industry compare to Fonterra?

If we have a look at how the sheep industry compares to Fonterra in terms of providing value to the farm gate level. The percentage of retail price that the farmer retains is a good indication of how hard the Co-op is working for the farmer.

It's important to note that both the major meat processors/marketers and Fonterra are Co-ops. So their purpose is to return profits to the farmer shareholders.

Aaron Meikle (@AaronJMeikle) is the central South Island extension manager for Beef & Lamb NZ. We had a conversation via twitter, where Aaron produced the graph below.

That figure surprised me. Thats a high proportion. Apple, which is the most valuable company in the world receives around 40% of the final retail price of it's products. Apple is a company that develops groundbreaking products and has total control of its value chain and it keeps 40% of the retail price. (although electronics do have low margins)

So for a sheep farmer to keep 40% is a pretty impressive figure.

The above graph shows the type of lamb product mix that is exported. In the 1970's 85% of exports were frozen carcases which were processed off shore into retail cuts.
Today a majority of the processing is conducted in New Zealand and the lamb is processed into prepackaged branded frozen cuts. Which is obviously much more profitable.


How does Fonterra compare?

I can't find any official numbers which deal with the percentage of retail that dairy farmers retain, but we can get a pretty good indication.

At a $6.00/kgms payout a Fonterra supplier will receive around $0.50 per litre of milk. The supermarket is selling 1 litre of Anchor milk for $2.60. So, the farmers share works out to be 19%, which is less than half the return the sheep farmer is receiving.


They tell us that the domestic milk price is related to the export milk price, so it's safe to assume that the price of milk powder is similar to the price of milk. I would assume that the farmers share of the milk powder price would be similar.

While these figures are just an indication, it appears that the lamb processors are returning double what Fonterra is returning to it's farmers.

Whole milk powder is a base ingredient. The major food companies like Kraft and Nestle buy the milk powder and turn it into more processed retail products.

If we looked at a chocolate bar or a tin of infant formula and we calculated the portion of the final retail price that the farmer receives, I would guess it would be well below 10%. 

If we look at the graph above, I would liken Fonterra to the sheep industry selling frozen carcases in the 1970s.

The sheep industry are doing everything they are supposed to do, they have stopped exporting unprocessed carcases and are now producing branded retail products.

If we did as Jason Uden continually suggests on The Farming Show, and put Sir Henry Van der Hayden (former chairman of Fonterra) in charge of the meat industry. I don't think you will see any change to the fortunes of sheep farmers. Fonterra seems quite happy to continue supplying commodity products.

I would actually say, dairy farmers should get whoever runs the meat companies and get them to run Fonterra!

Imagine if Fonterra gave farmers 40% of the whole milk powder price. The payout would be $12.00/kgms! What would the payout be if Fonterra gave farmers 40% of the final price of a tin of formula!

So why then, is dairy farming more profitable than sheep farming?

I don't really know the answer to this, but we could look at it from two perspectives.

1. MIlk is just worth more than lamb

Lamb is the final product, it can't be made into anything else. Lamb chops stay as lamb chops. I suppose wool offers the ability to become a much more high value product, so there is potential there.

Milk is an ingredient in so many products and can be made into a much more high value item. The reports of a tin of infant formula selling for $80 in China is an example. 

2. A kg of dry matter can produce more milk than it can lamb/wool

Aaron pointed out to me that 30 kgdm (kg dry matter) will produce 1kg of meat/wool and you could assume that 15 kgdm will produce 1 kgms. 1 milk solid is worth $6.00 and 1kg of meat/wool is worth about $5.00-$6.00.

So a dairy farmer only needs half the grass to produce the same revenue. So dairy is twice as productive.

Conclusion

So to conclude, the dairy industry is more successful than the sheep industry in a large part because, milk is in demand and worth a lot of money. Combined with the fact that more milk can be produced from a hectare than meat/wool.

The assertion that the Fonterra leaders are doing a better job than their red meat counter parts does not withstand scrutiny.  In fact Fonterra could learn a lot from the meat companies.

For dairy farmers to sit there, smugly taking credit for the success of the industry, is like a home owner taking credit for the rise in the housing market.

Having said all that, theres no doubt that consolidation of the meat sector will have benefits. But this is more around the supply of lambs than the marketing and sale of lamb.

Sheep farmers should be proud of their industry. They are doing all the right things. 

Unfortunately for the red meat sector, Fonterra is at the bottom of the value chain, it has lots of room for improvement. All they need to do is move slightly higher up the scale and therefore receive more of the final price and dairy returns will be well and truly outstripping sheep.

A Real Story About Inflation

My Uncle was a cropping farmer in Zimbabwe. He purchased his first farm as a young man and worked it for couple of decades.

Robert Mugabe decided in 2000 to implement his "Land Distribution Policy".

The mob of "war veterans" arrived one morning and the beatings began.

My Uncle and his family fled to South Africa. They eventually immigrated to New Zealand.

Meanwhile the farm was distributed between Mugabe's loyal supporters.

But the bank had a problem. There was still a mortgage on the property.

The bank started sending my Uncle letters to his address in New Zealand demanding payment of missed loan payments.

He replied, how can I pay the loan when my farm has been confiscated? To which the bank replied pointing out the finer points of the loan documents.

Eventually my Uncle got out the currency converter and entered his sizable loan balance in Zimbabwe dollars and converted into NZD. 

The balance worked out to be a few hundred New Zealand dollars!

So he just paid it.

Since the backbone of Zimbabwe's economy was evicted from their land the country went into hyper inflation. The value of the Zimbabwe dollar dropped so much that a loan in the millions could be paid off with a few hundred NZ dollars.

While my Uncle lost his life's work when his farm was confiscated he still has his credit rating in tact.