Bridg­ing gap be­tween meat and dairy prof­its

South Waikato News - - RURAL DELIVERY - By CONOR ENGLISH

There has been a lot of dis­cus­sion re­cently about New Zealand’s meat in­dus­try.

We all want more prof­itable and sus­tain­able farm­ing.

Meat farm­ers have been con­cerned that their gross in­comes are a bit lower than dairy farm­ers’ on sim­i­lar sized farms. For meat, three num­bers make bridg­ing that gap chal­leng­ing.

Firstly, the weighted aver­age kilo­gram/hectare pro­duc­tion for meat farm­ers across all land classes and re­gions for 2011-12 was about 187kg/ha (lamb - 90.77, beef - 66.43 and wool - 30.16).

Now this is a very rough num­ber as farms vary sig­nif­i­cantly from the high coun­try to the coastal flats.

Ac­cord­ing to DairyNZ, the aver­age kg of milk­solids per ef­fec­tive hectare for the 2012-13 sea­son was 988kg MS/ha.

De­spite is­sues with as­sump­tions made to get these num­bers, such as sup­ple­men­tary feed and how run-offs are counted, the ba­sic maths in­di­cate dairy farm­ers pro­duce a rea­son­able amount more weight of prod­uct/ha.

Sec­ondly, again roughly speak­ing, both meat and milk re­ceive about $6 per kg on aver­age over the years.

So to make up the dif­fer­ence, ei­ther the meat farmer needs to pro­duce sig­nif­i­cantly more kg/ha than they do now, re­ceive sig­nif­i­cantly more times the price/kg, or a com­bi­na­tion of both.

The third num­ber is the cap­i­tal in­vested. There will be meat farm­ers achiev­ing higher re­turns on cap­i­tal than some dairy farm­ers. How­ever, gen­er­ally dairy farm­ers do in­vest more cap­i­tal both on and off farm than meat farm­ers, so their gross in­come is there­fore likely to be pro­por­tion­ately more.

Re­cently, I ex­plained that it is un­re­al­is­tic to ex­pect a re­turn from an as­set you don’t own. I can’t re­ceive rent from the neigh­bour­ing house if some­one else has in­vested in it and not me.

So there is an is­sue about how much and where cap­i­tal is in­vested. This is true for both dairy and meat farm­ers.

Some sug­gest over­ca­pac­ity is a sig­nif­i­cant is­sue. The print­ing in­dus­try has the same is­sue and the mar­ket has dealt with it.

To make any progress it is go­ing to take more than in­cre­men­tal think­ing. Un­til meat farm­ers pro­duce or in­vest more per hectare, or meat com­pa­nies are able to ex­tract far more sig­nif­i­cant re­turns from the mar­ket place, the rel­a­tive gross in­come gap be­tween meat and dairy farm­ers will likely con­tinue. This is a sim­i­lar sit­u­a­tion to the gap in in­come be­tween dairy and ki­wifruit farms.

Some great progress has ac­tu­ally been made by farm­ers and meat com­pa­nies alike.

How­ever we need to keep at it.

Conor English is chief ex­ec­u­tive of Fed­er­ated Farm­ers.

Conor English

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