Dairy producers gain fresh momentum,so how sensible is it to impose a new levy on them?

After a slow start to the season, the NZ dairy industry has perked up,as at  the latest Fonterra  GDT auction prices firmed, after three successive falls.

That rise came on the heel of reports NZ dairy earnings from Australia have ballooned because processors there are short of milk and lining up to buy NZ dairy products.

Open Country Dairy, NZ’s second-biggest dairy processor and exporter, said it has had a 40% lift in demand for product from its Australian customers. South Island-based Westland Milk Products said it had been turning away approaches from across the Tasman.

Industry leader Fonterra, one of the world’s biggest dairy companies, said it was continuing to see strong demand from Australia. Fonterra had earlier earmarked for sale a stake in its Australian business,but only  last month announced it was not going ahead with that,a decision on which the board will be  congratulating itself.

NZ dairy exports to Australia in the first nine months of this year earned $8.6bn, according to Statistics NZ figures. This compares with $7.34bn in the full 2021 year.

Steve Koekemoer, CEO of 100% NZ-owned Open Country Dairy, said milk supply in Australia had been declining for some time, and dairy product manufacturers were struggling now to obtain supply for ingredients products like milk powders.

“They’ve switched their product mix away from wholemilk powder and I think they’re channelling their milk into higher value consumer products when they can.

“I think they’re diverting a lot of milk into cheese for example. Cheese is delivering a better result for farmers [to meet the contracted price with farmers] compared with wholemilk powder. That leaves less milk for wholemilk powder. A good source of that is New Zealand.”

Koekemoer said the increase in demand was coming from existing customers and traders, not new customers.

Now, for a trifecta, the dairyfarmers who supply Fonterra (as well as others supplying different processors) will be looking for better seasonal conditions to halt the decline in production. Fonterra recently reduced its 2022/23 milk collections forecast to 1,495m kg/MS, down from the initial estimate of 1,510m kg/MS (-1%).

So at the  latest Fonterra GDT auction, the  co-op sold 28,980 tonnes of product with the average price of $US3623 and the index up 2.4%.

The key products which have the strongest influence on the seasonal payout WMP and skim-milk powder were each up 3.1%

 to $US3397  and $US3097 a tonne respectively, while anhydrous milkfat was up 2.7% to $US5711.

 Butter was  down  0.8% to $US4829, and cheddar  1.3% to $US4746.

If then there is some relief prices have reversed the downward trend of  recent GDT auctions, it may not assuage the anger in rural  regions for the Ardern  government’s plan to impose levies on  agriculture for greenhouse gas emissions.

The government’s recommendations for the GHG emissions tax, which have changed from those in the He Waka Eke Noa Primary Industry Partnership’s proposal, indicate a reduction in production from the agricultural sector, driven by land use change. Forestry is modelled to take another million hectares of land, particularly in sheep and beef land.

Selling up appears to be a more viable economic action than trying to farm under an increased burden of levies. For dairy, the land use change is to horticulture, urban expansion and life-style blocks.

The farmers will be making the decisions for the future of their families, just like any business owner. When selling to forestry or lifestyle blocks, land is valued at over three times as much per hectare as drystock or dairy (the comparison being made in the same  same type of area). The result is a decrease in food production and export income.

 How sensible is that?