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What is that writing on the wall?

28 November 2014

I've written before about the folly of this country putting all it's creame eggs in the one dairy basket.

While dairy prices are high we crow about how well we're doing and an aura of prosperity envelops us. Farmers spend on cars, tractors and other things -- seeing cash flow into communities and jobs created.

All appears well with the world from our little patch of Godzone.

However, when the ill winds of falling dairy prices start to bite, things are a little less comfortable and we realise how precarious our monoculture economy really is.

But hey, these prices are cyclic so there'll aways be another boom period -- right?

Well, according to recent reports, it's looking as if that's not a dead-cert and perhaps we really ought to be focusing on diversification of export earnings before it really is too late.

This Taranaki Daily News story has some interesting stuff in it and carries a sage warning for those who regularly ride the diary gravy-train.

NZ has long prided itself on being the most efficient producer of dairy products in the world. Our temperate climate, abundant pasture and highly refined farming practices have meant that we've been able to squeeze more milk out of our cows and farmland than any other country -- what's more, it's all natural -- right?

Well it would appear that things are changing -- both here in NZ and around the world.

For a start, US farmers are rapidly catching us in terms of productivity. Their high-performance dairy farming "factories" are now producing huge outputs on a "per dollar invested" basis. While our cows are ambling around in the scorching summer sun or driving winter rain and hail chewing green grass -- theirs are kept at a comfortable temperature and fed almost limitless supplies of highly nutritious feed that is optimised for maximum production.

Cheap migrant workers keep the labour bills down and the number of these "factory farms" is growing at a rapid pace. Given the size of the USA, they could become our largest competitor on world dairy markets in a relatively short space of time. The TPPA won't help us one bit here -- in fact our dairy farmers are likely to be left right out in the cold when it comes to accessing US markets, even if they could be price-competitive.

But wait... it gets worse.

The dream of healthy Kiwi cows grazing on lush green pastures is also becoming a bit of a myth with recent reports indicating that supplementary feed such as palm kernel is now becoming the norm on an increasingly large percentage of our dairy farms.

If this trend continues, we'll no longer be able to claim the "naturalness" of our milk products as a point of distinction in a global market where many countries are now realising that there is much money to be made.

Let's also not forget that our effective dairy returns (per dollar invested) are plummeting due to the incredibly high price of land suitable for dairying.

Even if we are able to maintain current production levels, the ever-increasing price of land will reduce the viability of the whole dairy farming industry and at some point (if not already), the capital gains to be had from the land will far-exceed the profits generated by the dairying operations that take place on it. This will mean that share-milkers will be given an ever-smaller share of the profits and increasing amounts of dairy land will be put to other uses.

Finally... the evil spectre of climate change has yet to be addressed.

Our dairy herds are a huge producer of greenhouse gases. So far we've just quietly ignored that problem and opted instead to impose ridiculous carbon taxes on our hydro electricity generation (WTF?). Right now, dairy looks good because we're constantly dipping into our environmental impact bank and borrowing against a future of devastating climate change. At some point the world will demand that we stop belching methane at such a massive rate -- or our goods will be penalised on the global market by way of tariffs and taxes -- despite free trade agreements.

So yes, the writing is very much on the wall -- although I suspect that, as always, we will choose not to read it until it is far too late to mitigate its effects by diversifying our export base. By then, far too many great Kiwi ideas, technologies and products will have left these shores forever and be actively boosting the fortunes of other nations.

We are a bunch of naive, indolent stupid people sometimes.

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