The Fonterra boss backs continued dairy growth but can see a day when we might cap cow numbers... and could China steal the milk right from under our noses?

How much is enough? Or even too much? It's a fundamental question for any business or economy when you're dealing with supply and demand. And it's a crucial question when it comes to New Zealand's dependence on the dairy industry. So when do we reach 'peak cow'?

In any business there's an optimal level at which to operate and there's a point where you can over-supply or when you reach a maximum rate of extraction that is actually good for you and which, if you carry on, you actually do yourself more harm than good.

When it comes to dairying the Greens say we're already there and that the rapid number of dairy conversions in the past decade is now hurting the environment. At the moment the dairy glut on world markets (in part because of the Ukraine-Russia tensions which means EU milk once destined for Russia is being sold elsewhere) shows over-supply can happen. And even the Environment Commissioner Jan Wright says that dairy growth and environmental protection is a zero sum game. If we choose to keep increasing the number of dairy cows in this country -- currently 4.7 million on 1.7 hectares of land and growing -- then a drop in water quality and environmental standards is inevitable.

So we have to wonder when we might reach 'peak cow'.

National doesn't see the problem. Much of its economic agenda relies on further exploitation of the environment, notably more dairy farms to feed the growing middle classes of Asia.

This morning Fonterra CEO Theo Spierings unsurprisingly said there's not much to worry about. He rejected Wright's "zero sum game" analysis and said New Zealand can "easily" grow its dairy sector further.

How much? What was surprising was that he was quite specific. Coming from a smaller country -- the Netherlands -- he reckons 2-3% more dairy over the next decade is feasible given the size of the country. Specifically, he said:

"We can still grow with 60% based on conversions and more animals and 40% productivity".

The Greens will despair to hear that forecast. But he thinks after ten years of that sort of growth we will have reached a "balance".

And here's what stood out. He said he could imagine the day, presumably in about ten year's time, that we might want to cap the number of cows in this country.

"There could be a point in time that you say no more."

He said at that stage you might stop growth by conversion and say it's a productivity-only route from here on in.

Whichever path we take on dairying, we're going to have to be more savvy than the 'more cows' approach suggests. The staggering story we found researching the interview was the Australian dairy boss saying that given the number of live cows it's importing China "should" be self sufficient in dairy in five years.

That's right, just five years. Even if he's being terribly optimisitic, it suggests a real risk for this entire country's economy. Spierings plays down that risk, saying the Chinese have bigger fish to fry than becoming a dairy king and that, anyway, the Chinese prefer joint ventures and partnerships to just doing it alone.

But only a fool would look at China's rise and think they won't steal market share and profits from us in the not too distant future. And given that risk, should we be so blase about selling them land (eg Lochinver Station), companies and cows? Are we aiding and abetting our own economic decline tomorrow for a mess of gold now?

(And before you ask 'why pick on the Chinese?', other countries don't have state run and funded programmes to grow their dairy industries on such a massive scale).

It's a reminder that 'peak cow' is just one of the medium-term risks facing New Zealand. The even larger priority is reblancing the economy more rapidly and with vision, so that we are less dependent on one sector. We really need to stop talking about diversification and get the incentives in place so that it happens and pronto.

Comments (6)

by Rae on October 25, 2014
Rae

First up, I think it is absolutely ridiculous to allow any conversion of any land to dairying for it to end up in foreign hands and I include the land that already is in foreign ownership. If we excluded foreign ownership we would not have to even consider converting more land to this industry.

Next, I fear things like the Ruataniwha dam and the likes of Countdown screwing horticulturalists down so hard they can't survive will see us relying on just about all of our fruit and veg being imported. Also with dry stock land being converted means we won't even be able to supply our own meat. What stuns me is that people like Spierings and the govt just can't see past the ends of their noses where this goes.

I despair for what this country is becoming, and I think many are going to regret having re-installed this short sighted government

by william blake on October 26, 2014
william blake

She'l be right mate. Agriculture is only 5% of GDP, those generous bankers will see us through.

by Lesley Ford on October 26, 2014
Lesley Ford

We're well past peak cow. If the climate has to be changed in order for the dairy industry to continue, in other words our rivers damned to provide irrigation, because the current climate doesn't produce enough moisture for the grass growth needed for cows, then we have already reached to point of unsustainability. If an industry is not sustainable then it is ultimately not profitable. That may be a simplistic viewpoint, but I'm sick of our environment being ruined for the sake of short term profit seekers.

by Rae on October 26, 2014
Rae

We have reached peak cow because we have to import the fruits of destroyed rain forest (PKE) in order to feed them

by Grant Henderson on October 29, 2014
Grant Henderson

The banks wouldn't touch the Ruataniwha scheme (it's uneconomic) so the ever-generous National government decided the taxpayer could fund a rural elite instead. That says it all.

I note the dairy industry's fellow travellers are conspicuously silent on the topic of taxpayer handouts for irrigators. That silence does not extend to the irrigators themselves, one of whom was reported as saying government funding for his little scheme was well deserved.

A culture of entitlement would seem to be well-entrenched in the rural sector for both water from the public estate and taxpayer subsidies.

 

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