Fresh developments on climate  change measures in the dairy industry: a wake-up call to farmers

The NZ dairy industry faces climate change hurdles beyond the levies the Ardern government has indicated it will impose on farms. Fonterra CEO Miles Hurrell drew attention to them when he told an interviewer at the Fieldays at Mystery Creek the giant dairy co-op and its farmers risk not being able to access debt funding in the future if they don’t meet banks’ sustainability expectations.

Banks are wanting to set Scope 3 carbon emissions targets, which includes emissions they are indirectly responsible for, and not meeting their expectations could result in less favourable funding rates or ultimately not being able to access funding in the future.
“That’s something that we need to be aware of but it’s not a conversation we’re having with our banks at this moment,” Hurrell said.

Over the past four years, Solagri has worked with farmers and engineers to build and refine a solar solution optimised for dairy farm operations. Solagri Energy’s capital-free solution means farmers can have an innovative state-of-the-art grid-connected solar generation system without the significant upfront cost.
“The technology is advanced, but the model is pretty simple,” says managing director Peter Saunders. “Farmers provide us with a small parcel of land, about a quarter of a hectare, where we build the solar array. “In return, they receive solar electricity generated on their own farm at a fixed price for 20 years. There is zero capital cost to the farmer, any unused power will supply the local grid.”
Solagri are currently working on the development of their battery energy management system. Having recently received Callaghan Innovation funding, they expect to have batteries as a standard part of the offering within the next 12-18 months.
“The inclusion of batteries will improve the efficiency of solar and enable us to store electricity from the grid for use in the shed during the morning milking. They will also make the farm far more energy resilient with the shed being able to continue milking when the power goes down,” says Saunders.
Point of  Order sees a link between the message Hurrell was delivering an the progress Solagri is making. At its annual meeting, Fonterra told farmer shareholders that the dairy co-operative was likely to set a target for its own Scope 3 carbon emissions, which would include its farmers as 91% of its emissions were behind the farm gate. Fonterra also warned farmers that it risks losing customers and facing trade barriers in its overseas markets if it doesn’t meet sustainability expectations. Hurrell said the co-operative’s customers were setting Scope 3 targets, and putting pressure on Fonterra to come up with its own targets.
“We’ve done a lot of work on Scope 1 and 2 at our own supply chain and now the focus needs to shift to say, what do we need to do in Scope 3,” he said.
“The risks from a customers and consumer perspective is that we may be in a situation where those customers don’t work with us, they purchase from other countries, and there are other countries that do have Scope 3 emissions targets in place in various sectors.
“Of course, there may be markets that still are open to us. But our job is to extract the best value we can and we believe that those customers and consumers that are prepared to pay will be seeking Scope 3 versus those markets that may not pay the same level of return.”
While pressure was being put on Fonterra, Hurrell said the company believed that becoming more sustainable was “the right thing to do.”
“Our job is to paint a picture of what the future looks like, from a market perspective,” he said. “We feel obliged to let them know that’s what our customers and consumers are seeking.”

Ardern government seeks to butter up farmers with bold export forecasts and on-farm sequestration changes   

Farmers  had plenty to digest this week:  first, the Ministry of Primary Industries assesses exports from the sector will hit a record high $55bn  in 2023; second, the government took an important step back on the on-farm sequestration programme; and third, Field Days at Mystery Creek engrossed  those who attended (though perhaps not the Prime Minister, given the cool reception).

The MPI data showed Dairy again NZ’s largest export sector with forecast revenue due to top $23.3bn. That underlines how important the dairy sector has become in the NZ economy.  Red meat and wool exports are also expected to hit a record at $12.4bn.

Horticultural export revenue is projected to grow 5% to $7.1bn and processed food by 3% to $3.3bn. Continue reading “Ardern government seeks to butter up farmers with bold export forecasts and on-farm sequestration changes   “

 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?

a2 Milk gets approval from American food authorities to break into the US infant formula market

The  a2 Milk  Company has  made a  breakthrough  into  the lucrative  US  market, winning approval  from the  US  Food  and  Drug  Administration to  market  its infant formula product  in  the  US.

The company will be  able  to take  advantage  of  the  shortage  of  supply   there  because  one  of  the  main  local  manufacturers  went  out of  production.  Another  beneficiary   will be  Synlait  Milk  which  manufactures  infant formula   for  a2Milk.

Previously   a2 Milk has  been  limited  to  marketing  its  liquid  product  in  the  US.

Now, once  it  gets  a  foothold  in the  US  for  its  infant  formula,  it could  get  a  sharp  boost  to  its  revenue. In   its  most  recent  year, it  achieved  a net  profit  of  $114m,  59%  ahead of the  previous  year.

The a2 Milk Company’s CEO, David Bortolussi, said: Continue reading “a2 Milk gets approval from American food authorities to break into the US infant formula market”

World dairy prices tumble further as farmers face the prospect of being charged for livestock emissions

As debate rages in New Zealand’s farming industries over the Ardern  government’s  plan  for  charges  on  agricultural emissions, prices at Fonterra’s  Global  Dairy  Trade fortnightly auction  have fallen to their lowest level in nearly two years.

The average price at the sale fell 3.9%  to US$3537 (NZD$6054) a tonne, after falling 4.6% in the previous auction.

Prices have generally been falling since hitting a record high in March, and are now at their lowest level since January last year.

Wholemilk powder fell 3.4%  to US$3279 a  tonne and  skimmilk  powder 8.5% to US$2972  a  tonne, while  butter  was  marginally  up at US$4868  a  tonne  (though  a  long way  down  from  its peak  in  March  above  US$7000 a  tonne)  and cheddar 0.9% to US$4802 a tonne. Continue reading “World dairy prices tumble further as farmers face the prospect of being charged for livestock emissions”

Fonterra’s competitors challenge its capital restructuring plan – but the co-op has the backing of our Agriculture Minister

New Zealand’s   big  dairy  company, Fonterra,  has  come  under  pressure   from  two  directions  this  week.  First,  its  fortnightly GDT auction registered  another   fall  in  prices. Second,  it  faced  fire   from   four  of  its  competitors which  lobbied  the  government against  its  capital  restructuring  plan.

On  the  first issue, the latest  sale  has  taken  the GDT index  to  the  lowest level  since  January  last  year, although  what  may  soften that particular  blow  is  the  devaluation  of  the  local  currency. The  NZ dollar is  now  trading well  down against  the  greenback at US56c ,  from where  it  was  then,  around US70c.

The average price at the  auction fell 4.6% to US$3723 a tonne, after falling 3.5% in the previous auction. Continue reading “Fonterra’s competitors challenge its capital restructuring plan – but the co-op has the backing of our Agriculture Minister”

The consequence of cutting livestock numbers to tackle farm emissions? A culling of support for Labour in rural areas, perhaps

Has the Ardern government just  shot itself in the  foot?

Despite its  poll  ratings slipping in  recent  months, it nourished hopes of  returning to power next year.  But  its  “world-first” policy to  cut greenhouse  gases with farm-level pricing, effectively making 20% of  NZ’s  sheep and beef  farms uneconomic, could result in it  bleeding  votes  in  most  of the  regional electorates  it  won  in 2020.

The unpalatable  truth  is  just  dawning on the  country: cutting  agricultural emissions  means  cutting  food and fibre output.  And  that means slashing the export income on which  NZ  depends.

Clearly  the  Cabinet  ministers  adopting the  policy  announced  yesterday  believed  they  could “sell” it  on  the  basis  that NZ  would be  leading the world, in  cutting agricultural emissions.

In the event, they have been met with shrieks of outrage from farm lobby  groups. Continue reading “The consequence of cutting livestock numbers to tackle farm emissions? A culling of support for Labour in rural areas, perhaps”

Pricing farm emissions: it’s great to enable NZ to boast a world first – but how much culling must be done to achieve it?

The Ardern government is claiming a world first in its policy to cut agricultural emissions.

Prime Minister Jacinda Ardern asserts  that its proposal “delivers a competitive advantage, enhancing our export brand”, and…

“No other country in the world has yet developed a system for pricing and reducing agricultural emissions, so our farmers are set to benefit from being first movers.”

Farmers  themselves  may be bemused, if  not bewildered, by  the Government’s spin because critics claim the  scheme  aims to reduce sheep and beef farming in New Zealand by 20% and dairy farming by 5%, to achieve  what   Federated  Farmers  labels “the unscientific pulled-out-of-a-hat national GHG targets”.

Agriculture Minister Damien  O’Connor  seeks to put  the  best  face  he  can on the government’s  policy, saying  that

“… by rewarding farmers who take action to cut their emissions we can support more farmers to improve their productivity and profitability while achieving climate goals. Continue reading “Pricing farm emissions: it’s great to enable NZ to boast a world first – but how much culling must be done to achieve it?”

Oops – the world price dips for dairy products but low NZ dollar is a compensating factor

Dairy prices have fallen  at the  Fonterra  GDT  auction this  week.  The average price at the fortnightly sale fell 3.5% to US$3911 ($NZ6830) a tonne, after rising 2% in the previous auction.

Prices have generally been falling since hitting a record high in March. But   with the  NZ dollar  now  down around the US57c mark, the  impact   of  the  latest fall  on the  farmgate  payout  will not  be as  great as it  at  first appears.

The price of wholemilk powder, which strongly influences the payout for  farmers, fell 4% to US$3573 a tonne.

Prices for other products fell  also: butter was down 7% to $4983,skim milk powder down 1.6% to $3497,  and cheddar down 3.8% to $4,966.

NZX dairy analyst Alex  Winning  said a  significant lack of demand arriving at this auction has resulted in a red screen of price declines.

“Demand to supply ratios at this auction were almost half of what arrived at the previous auction.”

The amount of product on offer was up on previous auctions, which Winning said was a factor in the weaker prices, as was the weak demand coming from Chinese buyers.

“The lack of Chinese demand remains the big unknown for the wider dairy market, everyone on the sell side is still waiting with bated breath for the Chinese buyers to rally the market higher.

“Conversely, everyone else on the buy side of the market is most likely relieved not to be competing with strong Chinese demand while prices for everything else are climbing”.

Winning said the weakness in prices perhaps mirrored the wider macro-economic environment.

“It is tough on the ground for consumers and the tail wind of steady demand from consumers is likely to be fading”.

Dairy giant Fonterra  has cut the 2022/23 milk payout forecast by 25ckg/MS to a mid-point of 9.25kg/MS.

The new range is $8.50-$10.00kg/MS. However the current advance payment rate of $5.70kg/MS remains unchanged.

Fonterra also reported a 5% drop in local milk collection in August.

Another record payout for Tatua’s 101 farmer-shareholders

It  is  only  a star on the  horizon for  the  bulk  of  dairy  farmers — but  this is  what  they  may  aspire  to.  How  about  a  payout of  $11.30kg/MS?

That’s what the 101 farmer-shareholders in  the Waikato  specialist-product-co-op  Tatua  will receive — a  record — for the 2021-22 year.  Tatua will still retain close to $20m  to reinvest in the business.

Tatua  has reported group earnings equivalent to $12.65kg before retentions for the year ended July 31. This was up on the previous year’s earnings of  $10.43kg and was achieved in spite of Covid-related disruption and shipping issues.

The company said group income was $444m ($395m the  previous year), with earnings available for payout of $186m. Retentions were equivalent to $1.35/kg.

The 108-year-old company traditionally leads milk payout in the NZ dairy industry.  Fonterra’s final cash payout for 2021-22 was $9.50kg/MS.

Tatua chairman Stephen Allen and CEO  Brendhan Greaney said that in deciding the payout, the company was very conscious of sharp increases in farmer costs, as well as the need for continued reinvestment in the business. Tatua had a number of significant capital projects and business improvement initiatives under way during the year.

Milk supply was impacted by a long dry spell in the autumn months, resulting in a 6% fall in collection to 14.7mkg/MS on the previous year.

The  company had  anticipated  a  good financial  year,  telling its  farmers that  demand and pricing for its dairy ingredients were favourable and it was well contracted.  It  said  it was  focussed on the development and commercialisation of  specialist product opportunities.