Ramping up milk production is pushing dairy farmers deeper into debt and making them vulnerable to international price fluctuations, an agricultural consultant says.
Photo: AFP
An economist with Ropere Consulting, Peter Fraser, said the http://www.radionz.co.nz/news/business/270204/price-fall-'adds-to-the-pain' 10.8 percent average drop in the GlobalDairyTrade auction overnight on Wednesday] - the largest fall in more than four years - had shown up a bigger problem.
He said more milk was being produced, but the cost of producing it had ballooned.
"We've confused production gains with productivity gains and we've not had the productivity gains we've thought we've had, we've let our cost structures get out of control.
"And that's actually made farms much more vulnerable to fluctuations in international dairy prices."
Mr Fraser said dairy debt had gone from about $10 billion in 2000 to well over $30 billion - an increase of 300 percent, while production had only increased by between 50 and 60 percent.
He said it was time to challenge "the sacred cow" of increasing dairy production ad infinitum.
Further dairy intensification would involve putting more cows into barns and feedlots, as was done in the United States and Australia where it was economically viable because of their large arable industries.
Mr Fraser said this was neither environmentally nor economically sustainable in New Zealand.
Continuing to increase production only made sense if prices continued to climb, and this was no longer the case, especially with other producers coming into the market.
The dairy chairman for Federated Farmers, Andrew Hoggard, said the New Zealand Dairy Industry's strategy was not just about production but productivity.
However, he conceded that intensifying production had come at a price.
"It's a really difficult thing to change, you can't just scale back as easily - you can get locked into a system of farming.
Mr Hoggard said it did not make sense to change farm management styles every season, and individual farmers had to find the systems that suited them best.
