Wednesday, August 12, 2015

The Big Picture

Andrew Little always focuses on the little picture.   His latest crisis declaration for the dairy industry is a classic example.

What Little and various Federated Farmer know it alls have failed to see is the big picture which simply is one of a correction in supply and demand taking place.  Another part of the correction will be New Zealand’s pre-eminent position as the world’s lowest cost producer of milk solids.

Forty years ago, the dairy industry was an all grass, all rain, clover/ryegrass industry, restricted to naturally fertile soil types.  Note how all these factors are no cost or low cost. 
Today’s modern dairy farmer has taken up many of Europe’s husbandries in the headlong quest for maximizing (rather than optimizing) production, as he chased every last cent of an inflated $8+ pay out.

Thus was the industry’s international competitive advantage lost to greed.

Over the next year or so  we will see a return to low cost dairy farming where only moderate levels of potassic super are applied each year, where little urea is used to force feed grass growth and where bought in feed no longer exists.  Ironically this will please the Greens because it will see at least a twenty percent reduction in the size of the national dairy herd.

Then it won’t matter if China expands its dairy industry because it’s costs of production will be uncompetitive.  China will buy from NZ  and on-sell to Russia – just as it  is doing today. 

So much for trade sanctions.

No comments: