Landcorp sees NZ dairy conversion rate slowing
By Tina Morrison
June 24 (BusinessDesk) - Landcorp Farming, which has almost tripled its milk production over the past decade, expects the rate of dairy expansion will slow as environmental restrictions, and higher land and labour costs make it less viable.
Large tracts of flat land in New Zealand once used for sheep farming have been converted to dairy as farmers were lured by higher prices for dairy products while demand for sheepmeat and wool waned. The number of dairy cows has jumped to a record 6.7 million, while sheep numbers dropped below 30 million for the first time in more than 70 years, according to data published by Statistics New Zealand last month, covering the 2014 agricultural year.
"I think there's a ceiling on the number of dairy farms that the country can sustain across a whole range of factors including the ability to attract good people, the environmental limits that we have and the economics of farming," Landcorp chief executive Steven Carden told BusinessDesk. "We are getting close to that point as a nation so certainly the pace of dairy conversions that have occurred in the past I think will start to slow."
Carden said it was difficult to pinpoint one measure that would indicate peak dairy capacity.
"It will just naturally occur because people will do business cases on land conversion, as we do, and it just won't stack up anymore and it will just stop naturally for that reason," he said. "I couldn't tell you what that number is but the industry will get to it like any industry does when the economics aren't there."
The industry is under pressure from environmental groups calling for Landcorp to halt dairy conversions immediately following warnings last Friday from the Parliamentary Commissioner for the Environment, Jan Wright, about the impact of dairy intensification on New Zealand waterways.
Factors influencing future dairy expansion include the cost of land conversion, underlying land values, increased costs of staff and other inputs, and restrictions on nutrient loading and water use, said Carden. "It gets to a certain point where it becomes just too expensive to get the return that you need."
State-owned Landcorp, the country's largest corporate farmer, owns or manages 385,086 hectares of land, 22,634 hectares of which is used for dairy. Its milk production has soared to an annual 18,616 tonnes of milk solids, from 6,948 tonnes a decade ago.
Wright said at the weekend that some parts of the country can't accommodate more dairying because of the negative effect on the environment, and conversions should be capped there. She singled out the Waikato, and questioned whether a Crown agency such as Landcorp should be involved in dairy conversion.
Carden said the company is "well aware" of the issues raised by Wright and recognises the concerns some have about water quality in parts of the country.
Landcorp has been working on dairy conversions in the Central Plateau since 2004, when it took on a land conversion lease from the land owners, Wairakei Estate. At present, the Central Plateau dairy conversion represents 1.5 percent of all the cows in the Waikato region, he said.
"In all its conversions, in any part of the country, Landcorp has been extremely careful to ensure the conversions are environmentally appropriate as well as financially viable," he said. "We are driven by our own values as a company to ensure our environmental impact is as minimal as possible."
All its dairy farms meet the requirements of the Sustainable Dairying Water Accord and water and nutrient limits managed by regional councils, and the company is looking at new technologies and system changes that will further reduce the environmental footprint of the farms, including nitrogen inhibiting technologies or fewer cows per hectare of land, he said.
Carden said the company aims to find the highest use for land around the country, taking into account the return potential and the environmental impact.
"Dairying has been considered the highest use across much low lying land for at least a decade," he said. "However, lower returns (as land prices rise) plus growing environmental, safety and employment challenges are making it more difficult to justify in some regions of the country" such as Canterbury.
As new technologies and science emerge that help limit the environmental impact of dairying, that equation will continue changing, he said.
Landcorp is keen to access more land to fatten stock before they are sent for processing as much of the land used historically for that purpose has been converted to dairy farming, leaving lower quality hill land, he said.
"We are really keen to look at ways in which we can reverse that tide so that it actually makes more economic sense and more environmental sense to convert land out of dairy back into high-quality finishing land but we are not quite there yet," he said. "It would be a great outcome for us as a business and we would need more finishing land if we could be successful in that respect."
To try and improve returns outside of dairy, Landcorp is expanding into new areas such as sheep milk and securing higher-value agreements with end customers.
ASB Bank rural economist Nathan Penny said the best dairy land had already been converted in places such as Canterbury and Southland and further conversions would be on more marginal land and subject to more stringent water regulations and consent processes. The pace of dairy conversions will slow and other land uses are likely to become more competitive relative to dairy, he said.