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3.4 Dairying

3.4.1 Prioritisation of issues

As with the other livestock industries, animal health, particularly mastitis control, was one of the main issues foreseen. Woody weeds are considered to be slightly less important in dairy farming, since most dairy farmers have already eradicated this problem.

Maintaining nutrient fertility and understanding more about how the biological activity of the soil could be improved was identified as important to the development of a viable organic dairy system. The workshop also identified, as did all the other three workshops, the need for organic dairy farmers to obtain new information, and one of the industry and infrastructure limitations identified was the lack of advisers and knowledge networks.

Reflecting on the key priorities that were established during the workshop, i.e. wanting industry support/infrastructure and information/knowledge, the following needs were identified:

• with a good industry infrastructure in place, it should be no more difficult to gain information than for the "average" dairy farmer;
• tighter production-focused groups of organic farmers accessing knowledge together;
• increased access to, and assistance in, the interpretation of research that is relevant to organics;
• the lack of processing capability within the industry was a major limitation to growing the sector.

Constraints to conversion to organic dairying production identified by the Focus Group are listed in Table 19.

Table 19 Constraints identified by the focus group and their relative importance to conversion to organic dairy production

1 The words "All", "Many" and "Few" rank the importance of an issue in terms of the proportion of votes it received by the workshop members.

3.4.2 Waikato/Bay of Plenty dairy farming model

This model is representative of seasonal supply dairy farms in the Waikato and Bay of Plenty regions (MAF, 2000). It is based on an average property of 83 effective hectares, wintering 220 cows and producing 62,250 kg MS. Some surplus bull calves are sold as four-day calves for rearing, with the remaining calves sold as bobbies. The replacement yearling heifers are grazed off the farm for 12 months. An owner-operator milks the cows and employs a permanent (single) worker who manages the farm. The all-up capital value of the business is $1.5 million with an equity level of 74 percent.

The Waikato dairy model was used as the base on which to examine the financial implication of addressing the major constraints to organic milk and meat production (Table 20).

Table 20 Key parameters of the model

3.4.3 Assumptions for conversion to organic production

In the construction of the organic Waikato and Bay of Plenty dairy system, the following changes and assumptions were made to accommodate the constraints identified by the Focus Group:

Stock management

• 10 percent decrease in stocking rate (2.7 to 2.5 cows/ha) from the MAF base model to the organic model.
• Yearling heifers are grazed-off in the MAF base model and grazed-on with organics. Certified grazing land is not widely available at present. It is possible that organic grazing will become more widely available in the future, providing more rearing options.
• The organic farm aims to minimise herd wastage, so the replacement rate is lower (19 versus 22 percent) and the herd structure is older on the organic unit. Stock losses are expected to be lower on the organic unit. In practice, if the same replacement rate was used, stock could be more aggressively culled for high somatic cell counts and to maintain a reasonable calving spread.
• The use of maize silage as a balancing supplement when the pasture is high in protein is expected to maintain higher bodyweights in autumn and improve cycling in spring. However, it is claimed that the acidity of the maize silage interferes with mineral balance and some organic farmers may therefore be reluctant to pursue this policy. The higher energy content of the diet with maize silage supplementation is assumed to improve cow performance in early lactation.
• Graze cows off-farm in winter (must be organic land).
• Earlier calving and an extended number of milking days.

Agronomic management

• The MAF model farm conserves 40 t of silage and 900 bales of hay. The organic farm, in comparison, conserves 108 t of maize silage, 30 t of grass silage and 2250 bales of hay to compensate for the very limited availability of off-farm grazing and supplements, and the lack of a nitrogen fertiliser option.
• Since maize is susceptible to Argentine stem weevil (ASW) and weeds, the crop area (6 ha) on the organic unit is cultivated one month earlier than normal to ensure that there is no carry-over of ASW and to allow time to reduce the weed threat by extra cultivations. The yield is comparable to a conventional system.

The assumptions for conversion to organic production are listed in Table 21.

Table 21 Assumptions for conversion to organic production

Farm working expenses		MAF model ($)	Organic ($)
Item	Comment
Labour	No change to labour. No permanent labour. Allowance is made for summer student and casual relief milking. Workload would be similar but work activities differ with less time spent on animal health and more on weeds on the organic unit	19,000	19,000
Animal health	The MAF model farm costs ARE based on actual costs for farms of this type. There will be a $5000 decrease in animal heath costs. Emphasis switches to prevention (e.g. blood testing, minerals, tonics) rather than treatment	12,390	6,000
Breeding expenses	"Green" semen is more expensive. Organic costing assumes 220 straws of green semen @ $21 "in the cow", plus herd testing ($2200) and tags ($300)	6,280	7,120
Hay/silage	Applying current prices to the quantities conserved	4,400	4,900
Maize silage	The 6 ha (108 t) of organic maize silage has a total cost of $1500/ha. Sourcing GE free varieties could become more of an issue	0	9,000
Grazing	The MAF model farm grazes off 42 heifers for the full year at $6.50/week	14,200	0
Calf rearing	The MAF model farm feeds milk replacer, whereas the organic farm relies on whole milk fed at 6 l/calf for 8 weeks and 1 t of certified meal Current certification requires 12 weeks on milk	6,000	1,000 (+value of milk)
Fertiliser	The MAF model applies 40 t of 30 percent K SSP; 35 t of 15 percent K SSP; and 12 t urea. The organic model applies 45 t of RPR and 20 t of sulphate of potash (minerals applied to the organic farm are covered under animal health) Application of potash as sulphate of potash is a restricted activity	P/K 24,200 N 4,950	26,200 0
Lime	Both systems are assumed to apply 40 t per annum	2,000	2,000
Dairy shed expenses	Differs as a result of fewer cows milked	3,900	3,600
Electricity	Assumed to differ only as a result of milking fewer cows	Farm, 4,600 House 1,000	4,400 1,000
Freight	Components may differ but overall cost the same	1,300	1,300
Re-grassing	The MAF model figure reflects actual cost. Organic farm re-grasses after the maize silage crop using more expensive organic seed	2,460	2,260
Weed and pest	Weed and pest control will decrease by 80 percent to $260. Areas susceptible to woody weed invasion should be planted in trees. Labour inputs will increase, but this is taken into account	1,750	700
Fuel and vehicle costs	Unlikely to change overall. While extra cultivation will be required, a tractor will not be required for weed control or urea application	9,935	9,935
Other admin. and interest	Repairs and maintenance, rates, phone and mail, accountancy, ACC, legal, interest	74,250	74,250
Organic audit			2800
Cash farm expenditure (CFE)		193,815	176,395

Milk production on the two systems

Milk solid production would be very similar in the mixed aged cows at 323 kg and 333 kg MS/hd for the MAF base and organic models respectively. Similarly, the R2 heifers produce 290 versus 299 kg MS/head for the base and organic models respectively.

The MAF model herd would be expected to perform better at the peak of the season. The smaller organic milking herd will produce more milk per cow over summer and this may carry on to the end of the lactation

3.4.4 Financial outcomes from the model

Revenue

For a comparative analysis of this type, expected long-term prices are used and output is assumed to be in the fifth year after conversion. The first issue is what the long-run comparative position is and, if this is favourable, the analyst should consider the transition. A milk solids price of $4.58/kg MS is forecast to be the average of next five seasons, including the current season (Source: SONZAF). On a similar basis, the price for manufacturing cow beef is expected to be $2.57 c/kg carcass weight (T. Wharton, MAF, pers. comm.). These prices are significantly lower than current realisations due largely to the expected appreciation of the NZ$ from US44c in 2001 to US$52c in 2005. Gross farm revenue is shown in Table 22.

Table 22 Gross farm revenue

The key issue is the premium for organic produce. As agreed at the workshop, the milk solids premium is set at the breakeven premium required to deliver an equal cash farm surplus. The breakeven premium is 12 c/kg MS – an increase of less than 3 percent over forecast MAF model returns.

In reality the premium on the milk price would need to be higher than this to induce a significant number of farmers to take on the risk of changing their system to organic and to cover any income loss during the early stages of conversion. The 12 c/kg MS figure suggests that the required premium on milk to deliver a similar cash farm surplus is small. Further, the organic system does not appear to be more at risk from seasonal pasture growth factors. With little premium required to address the drop in stocking rate, funding the conversion period is not thought to be a major constraint to producers contemplating a shift to organic dairying.

It is assumed that all certified organic stock are sold off the property and are worth the same as conventional beef. In some cases stock will earn a premium. A 10 percent premium on milk alone, or on milk and the value of all stock sales, would increase gross farm revenue by 14.6 percent and 16.6 percent respectively, above that of the MAF base model.

3.4.5 Comparison with other dairy systems

The MAF base model used in this exercise to examine the financial implications of accommodating the constraints to organic production identified by the workshop members is based on the Waikato and Bay of Plenty dairy model. In sharp contrast to the other sectors (particularly the sheep and beef and arable sectors), examined in the present study, the results from the dairy analysis can be extrapolated with confidence to dairy systems in other parts of the country.

3.4.6 Risks and the impact of risk on financial performance

The small change required to the dairy operation, and hence the small impact on production levels, exposes producers to little risk during both the conversion period and when fully certified. This is in sharp contrast to the sheep and beef and arable sector models examined in this study. Potentially greater threats to the financial performance of the organic dairy unit include:

• animal health, primarily mastitis as it reduces cows in milk and total milk production;
• high somatic cell counts create difficulties for some organic producers;
• the ability to maintain soil fertility and particularly potassium, as it affects the seasonality of and total pasture production and pasture quality;
• weeds as they affect pasture production;
• utilisation of forage crops, milk characteristics and the absence of a nitrogen fertiliser option for managing feed shortages.

One of the risks of organic production is that if something unforeseen occurs, there is a limited range of allowable responses to fix a problem if the organic status of the animals and their products is to be maintained. Organic producers need to be forward looking, good planners and managers, and have different thought patterns to conventional producers.

In contrast to the wider industry, organic producers do not have the same knowledge and management infrastructure available to them. This causes uncertainty and potentially results in delays in actions.

Participants identified the perceived lack of commitment by the dairy industry currently to developing the processing and marketing capability necessary for a sizeable organic industry as the single biggest factor limiting this sector.

 

Contact for Enquiries

Kay Brown
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND

Phone: +64 4 894 0695
Fax: +64 4 4 894 0746
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