No guarantee over market premiums

Regional president Federated Farmers Murray Holdaway says calculating profits not as simple as it seems

Ihave never been sure whether Country Calendar serves as a good source of information for urban people on farming practices, or if it is more for the agri sector to feel good about ourselves.

Possibly it could be both, but after seeing last week's episode I think it didn't do either.

No criticism of Geoff and Justine Ross of Lake Hawea Station, they own the farm and are entitled to engage in whatever farm practices (within the law and consents) they wish.

I also have some empathy with some of their thoughts that we need to look for better ways of operating our farms to further improve on the very good environmental record New Zealand farming systems have.

But if we are going to be serious about assessing some of the practices that were shown in the programme, then we need to apply a bit more science and independent rigour.

We were assured, or left to assume, the practices were achieving the aim of getting market premiums and making the business more profitable, and that this was the way of the future. The farm was said to be certified as carbon zero, which I assume was also part of getting the market premiums.

This raises a few questions in my mind. Firstly, if this is the way forward and we all adopt these farm practices, the market premiums will disappear, because the supply will outstrip the demand.

It is fallacy to think that all New Zealand's production could go into this specific market, and all get the premiums that currently exist. That means the economics of the alternative system become questionable, at least.

And when we talk about what profit the business is making, what do we mean. Profit is not as simple as it seems. Do the profit calculations include payments to the owners at a reasonable level, returns sufficient to match the opportunity cost of the capital employed, and are the returns sufficient for the business to save enough to be able to have a viable succession, or retirement plan.

We often hear talk that market premiums will offset lower productivity if we change to a lower footprint farming system, but we shouldn't forget that these premiums are not guaranteed.

The markets are also dynamic, especially in today's world, and consumer preferences could and do change based on several different things. With what is happening in the world currently, food security is almost certainly going to become more important, not just for consumers but for countries as well.

In my view, the products from New Zealand agriculture, with our proven record in animal welfare, environmental efficiency, and economic efficiency (remember we are unsubsidised) are sufficiently differentiated from other countries, that we should, and are getting a premium now.

The question is can we promote and advertise our advantages better, to improve the current premiums, so that farmers are in a better economic state, and have confidence to invest in innovation to further improve our performance in line with what our customers want.

Wouldn't be great if our Prime Minister, and Minister for Trade and Primary Industries were telling the world that right now.