Farmers face ‘catastrophic’ costs
Confidence is low in the countryside amid compliance costs, environmental regulation and restricted bank lending. Bonnie Flaws reports.
Farmer morale is low, despite record highs for commodity prices last year, farmers say. Lamb, beef, forestry and fruit all saw record prices in 2019, and 2020 got off to a good start with milk prices up 2.8 per cent.
But the sheer amount of challenges ‘‘coming down the line’’, from regulation like the zero carbon bill and freshwater management policies, to restricted lending from banks, has resulted in low farmer confidence and morale, Canterbury dairy farmer Jessie Chan-Dorman said.
‘‘Yes, it’s a really good milk price, but most of us will be paying down debt and consolidating. There won’t be the growth we’ve seen in previous years.’’
Rural businesses were noticeably slowing down as farmers tightened up on spending, she said.
ASB senior rural economist Nathan Penny said the price of milk at the farm gate is forecast to average $7.50 in the 2020 financial year, but could easily hit $8 if there was a drought or the value of the dollar fell.
He expected commodity prices to come off last year’s high but remain healthy given global demand and the ongoing impact of African swineflu.
However, competition for land and water was now quite fierce and with environmental constraints, farmers had to be more sophisticated in the way they grew, he said.
A slow down in farm sales and an expected softening of dairy land prices could add extra pressure.
In a report released this week Rabobank dairy analyst Emma Higgins said she expected dairy land prices to drop across the country in the short to medium term due to an erosion in cash returns.
In the next five years operational and compliance costs were expected to rise, while production per hectare would slow down due to reduced stock numbers, falling fertiliser use and improvements in genetics, she said.
Otago sheep and beef farmer and president of Otago Federated Farmers Simon Davies said rural New Zealand was tired of picking up the tab for the rest of the country.
‘‘All this stuff is being forced on provincial New Zealand from central government, whose voter base is urban. The economic impact of some of [the regulatory compliance] is going to be catastrophic,’’ he said.
With farmers already under pressure to reduce debt, and bank lending drying up, it wouldn’t take a lot more to push things over the edge for what was a normally resilient community, he said.
‘‘Ironically, the only people who have got money to buy land at the moment are people who are investing in carbon and forestry,’’ he said.
Chan-Dorman said the conversion of pastoral land to forestry under the billion trees programme was another strain on rural communities.
She questioned why there wasn’t more of an incentive to plant native trees if the Government was serious about the long-term future of the country.
Davies said he had planted 100 hectares of pine, and had calculated that he was already carbon neutral. He would still have to reduce stock numbers since farming could not offset emissions with pine trees now that it was not part of the emissions trading scheme. There were no other mitigation methods for methane, he said.
But Chan-Dorman said New Zealand had an opportunity on its hands if it could embrace the transition to new carbon neutral farming systems that did not affect fresh water. The premium consumer wanted to pay for it.
‘‘For us, we have gone from being really highly stocked, bringing in heaps and heaps of external feed, grazing our cows out on other farms, which is all part of your footprint, to reducing our cow numbers by over half so that we can have all of our cows on farm. And we can grow all of our own feed, including low-nitrogen feed like maize, and do it in a way that is still profitable.’’
That transition will be harder for some than others, she said.
Farmers needed to understand where they could effect change and then plan for it.
Penny said freshwater reforms would require farmers and regional councils to develop water management plans by 2025.
From June 2020, changes such as new irrigation or conversion to dairying would only happen where there is evidence it would not increase pollution.
Standards for intensive winter grazing, feedlots, and stock holding areas will also be applied. In catchments with high nitrate or nitrogen levels there would be a reduction in nitrogen loss within five years and there would be more fencing and wider setbacks to keep stock out of waterways, he said.
Davies expected every farm south of Culverden in North Canterbury would probably need a resource consent ‘‘for something or other’’. In most cases for winter cropping.
Up until now, he had never needed a consent for anything and was hoping to secure one as soon as possible so he could safely plant his winter crop. The alternative was to reduce stock numbers by 25 per cent.
He also expected to see farm environmental plans become compulsory in the near future, and while he already had one in place he reckoned the vast majority did not.
Horticulture was the fastest-growing president of Otago Federated Farmers, right agricultural sector, Penny said.
Opotiki kiwifruit grower and New Zealand Kiwifruit Growers chairman Doug Brown said the sector’s biggest challenge was labour availability and not just at harvest time.
There was a greater need for permanent employees to keep up with growth. It was likely there would be shortages again this year and industry was working on schemes to attract more labour, Brown said.
Weather and biosecurity issues would continue to be challenges, he said.
‘‘Early December we had some pretty significant winds when the skins were quite tender and we’ll probably see a lift in the reject numbers as a result of that,’’ he said.
Growers would also be affected by compliance with new water rules and growers were looking at strategies to use water more effectively.
Gold kiwifruit was underpinning the profitability of the sector, with 700ha of gold kiwifruit being licensed a year. Gold production outstripped green for the first time last year, Brown said, and this would continue to grow.
‘‘The economic impact of some of [the regulatory compliance] is going to be catastrophic.’’ Simon Davies