Cows near Clydevale, South Otago. Photo by Craig Baxter.
Agricultural scientist John Lancashire says the dairy
sector has been dragging the chain environmentally and in how
and what it produces.
A recent newspaper article on the New Zealand dairy industry
was headlined "Fonterra gets a pass mark but there is still a
long hard road ahead".
This must have been disappointing to Fonterrra, as there has
been a recent outpouring of "good news" stories about the
industry from the company itself and supporting commentators,
including a $4 million PR campaign through Dairy NZ funded by
dairy farmers.
In justifying this large expenditure, a spokesman for Dairy
NZ said they could not understand why the sector was thought
of so poorly by many New Zealanders, so their sometimes
misleading campaign had been designed to correct that
impression.
If this lack of understanding is genuine, it shows a very
serious lack of empathy for the obvious damage done to our
waterways and lakes by dairy cows.
This failure to recognise the cost of the sector's
environmental footprint has been well illustrated by Dr Mike
Joy, of Massey University. Unfortunately the industry, aided
and abetted by much of the rural press, has taken the
position of shooting the messenger rather than confronting
the message.
From the point of view of the general economic wellbeing of
the country, these real concerns are often diminished or
ignored, because criticism of an industry contributing 25% of
our GDP is seen as disloyal.
But unfortunately, the dominance of our primary sector as the
so-called backbone of our economy, particularly dairying, in
the past 30-40 years, has coincided with a very rapid fall in
our relative economic performance in the OECD.
This is largely because our primary sector businesses show a
lousy return on investment. In sheep and beef enterprises it
varies between 1% and 3%, and even on dairy farms the return
on all capital employed rarely exceeds 4%. The bank would
provide a better return. The only reason we keep on farming
is because of the high rate of capital gain on farmland, with
the doubling of dairying land prices between 2004 and 2008
the main cause of the $30 billion debt now carried by the
sector.
This is not a sustainable position for a wealthy New Zealand
and the banks must take some responsibility for this
development. However, the situation is not new and the
obvious solution of improving product prices has been
suggested many times.
But Fonterra remains largely a commodity trader trapped in
low and volatile returns. What is needed is a much stronger
incentive for farmers to demand a higher payout from the
companies, but this will only come about if the return from
land inflation is reduced.
This could be achieved by a gradually increasing capital
gains tax on land, which has generally been welcomed by most
commentators, but not by Federated Farmers and some
academics. This is not to suggest that Fonterra and other New
Zealand dairy companies try to become a Nestle, but just
diversify sufficiently into added value products to
significantly lift returns to farmers.
This would also have the advantage of reducing price
fluctuations, as it is generally recognised that the price of
added value products is less volatile than commodities.
Certainly, I have not noticed the price of Kikorangi blue in
my local supermarket fluctuating wildly!
Unfortunately, unless the dairy industry and the country do
not seriously discuss this dysfunctional situation with the
primary sector, then New Zealand must start to look at
alternative forms of investment.
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