Nitrate Leaching Overview

Today I give a overview of nitrate leaching.

What is Nitrate Leaching?

What type of farming leach the most Nitrate?

How nitrate leaching from dairy farms is different from cropping & horticulture.

Well, gidday. My name is Glen Herud and today I want to talk about nitrate leaching and basically just give you a run-down on what nitrate leaching is about, and then later on I am going to talk about how we can start farming systems that have low rates of nitrogen leaching.  

Weed & Algae need both Nitrogen & Phosphorus in Order To Grow

So basically, if we look at water quality issues we've got two things. We've got nitrogen and phosphorus and what causes algae blooms and sort of algae build ups in our waterways.  What happens is if you have just phosphorus, pretty much nothing happens. If you've got just nitrate in the water systems, then pretty much nothing happens as well. But if you've got the two together, that's when these algae growths take place.  So, I won't worry about phosphorous today but we'll talk about nitrate today.

Who Leaches the Most Nitrate?

So, a few figures are that if you're a veggie grower, if you're a market gardener, the statistics show us that you will leach around 177 KGs of nitrogen per hectare per year.  If you're a cropping farmer, that's weeds and those sorts of things, you'll do 61 KGs per year.  If you're a dairy farmer, you'll leach around 65 KGs a year. If you're a humble old sheep farmer, you'll do 21 KGs of nitrate per hectare per year.  What that means is that basically this excess nitrogen filters out of those farming systems. and it's basically draining out the bottom of the soil.  When you look at cropping and these veggie growers, basically they are as a result of excess fertilizer, basically nitrogen fertilizer. They put a heap of fertiliser on and that fertiliser is going through the soil profile. 

85% of Nitrate Leaching From Dairy Farms Comes From Urine

But the dairy industry is different.  85% of all nitrates or excess nitrate from dairy farms is from urine.

So that's not urine from cows standing in a river urinating

and it's not from the urine in dairy effluent either

But every time we hear about environmental impacts from the dairy industry, that's all we hear about.  But they are not actually the issues. 

The main one is cows standing out in the paddock, urinating

Urine Patch Contains Equivalent to 800kg Nitrogen per Ha

Here's what happens. Basically, here is a cow. This is a bit of a funny cow.  She's a Friesian so what she does is she urinates into what you call a urine patch, which is about the size of a dinner plate. Within that dinner plate, there are 800 KGs of nitrogen per hectare. So there is an equivalent to 80 KGs of nitrogen per hectare. So the way I think of that, to make sense of it is if you take a hectare, which is a football field and let's say we had a way of getting all these cows lined up so they all urinated at once and all the urine patches covered one whole hectare.  If they all urinated at once, that would be applying 800 KGs of nitrogen per hectare at once. 

Average NZ Dairy Farmer Applies 150-200kg Nitrogen per Ha per Year

To give you an indication of how much that is, your average dairy farmer does around 150 to 200 KGs of nitrogen per hectare per year.  They will do that over multiple small allocations of fertilizer.  So, what I want to sort of get through to you is that there is a heck of a lot of nitrogen in a urine patch.  What happens is that if you think about grass. I don't know, what we got? Five, six, seven grass plants within a urine patch? They've got their roots systems that go like that, probably around 30 centimeters deep.  So what happens is the nitrogen comes in via the urine and while it's in the soil it turns into nitrate.  It can be absorbed by the plants.  If you look at this picture here, you can see these dark green patches in the paddock there. Those are fertility patches.  They are either feces patches or urine patches. What's happened is that those grass plants there, have as much nitrogen as they can get and they've bolted away and they are nice and dark and green. 

The Few Grass Plants in a Urine Patch can't Absorb all the 800kg of N

The problem is that there are 800 KGs of nitrogen being applied. Well, a heck of a lot of nitrogen will be applied and those few little plants, there is absolutely no way they are going to be able to absorb all that nitrogen. There is far too much.

What happens is the nitrate attaches to water molecules, H2O, because nitrate is soluble in water.  Those water molecules filter down through the soil profile and drain away and they take the nitrate with them. Once they get below the roots’ depth of the plants, they can't get absorbed.  It keeps on going, all the way down, until it gets into our groundwater. Then it ends up in our waterways.  So that is very simply how nitrate leaching takes place.  Essentially, excess nitrate that isn't absorbed by the plants ends up filtering through the soil profile and getting into our groundwater. 

There are a couple of things that affect the rate of nitrate leaching.  One of them is your soil profile. If you've got nice, well I shouldn't say nice, if you've got free draining soils that are kind of rocky, the water flows through those soils much more quickly.  So, obviously the nitrate flows through quicker. If you've got heavier clay soils, then the water sort of sits there more and therefore the nitrates sits there more.   The amount of water in the soil profile affects the rate of nitrate leaching. What happens generally is during the summer lots of nitrogen is sort of applied and it sort of sits there in the soil and then winter comes along and we get all this wet weather and it all sort of leaches out through the winter.  What's the other thing that affects nitrate leaching? Oh, your plants, your root depths. If we can get plants that have twice the root depths, then there are obviously twice as much time for them to absorb nitrate. That's a very brief rundown. It will probably horrify a few scientists but that sort of serves the purpose of what we need to explain today. 

So the next little while I'll start talking about how we can farm differently in ways to reduce our nitrogen leaching cap or nitrogen leaching rate. If you have been following the news you'll see that regional councils are starting to sort of propose nitrate caps, so saying that you can only leach around 25 KGs of nitrogen per hectare per year.  Obviously, if you are a potato grower, they would horrify you and dairy farmers are equally worried about how they are going to be able to farm and meet that sort of a target. That's what I want to talk about in the next couple of weeks.

Dairy Farm Staff And The Shocking Rate Of Employee Turnover

In this video I continue to discuss dairy farm staffing issues. I reference three reports into dairy farm employment.

The first is a report by Dairy NZ called Smarter Not Harder, Improving Labour Productivity in the Primary Sector

The second is a report written by Gillian Searle in 2002 called The Reality of a Career in the Dairy Industry, An Employee’s Perspective


These two reports found that:

• 50% of dairy staff have been in their current job less than 1 year
• The average length of service for a dairy farm employee is less than 1 year
• 1/3 of dairy staff leave the industry every year!

The third report written by Richard Kyte's "A different approach to staffing in the dairy industry" attempts to show that increasing staff numbers actually increased his farms productivity and profitability.

Transcript:


Well, gidday. Glen Herud here again and I am going to carry on talking about dairy farm staff. Last time I said that only a small percentage of New Zealand population are prepared to work on a dairy farm simply because of the long hours involved. 

Today I want to talk about a report that was released by Dairy NZ in 2009 I think, called “Farming Smarter Not Harder.” They had some interesting figures.  

• They said that 50% of staff had been in their current job less than one year.  

• The average length of service, so that's the average time people stay with an employer was less than one year. 

• 1/3 of dairy staff leave the industry every year.

These figures are also backed up by a report written by Gillian Searle way back in 2002, and she found that 59% of staff that she surveyed had been in their current job less than six months. 
These are figures from the dairy industry. These aren't figures from an anti-dairy group. These are their own figures. This shows a horrendous amount of staff turn-over. I can't even imagine trying to run a business where the majority of your staff aren't there for a full year. There is no continuity or anything.  So, these figures surprised me quite a bit. 

Average Staff Turnover in NZ is 20%. NZ Dairy Turnover 40% 

Now, take a look at this graph. This is from the “Working Smarter Not Harder” report.  If you look at the bottom line there that's the New Zealand average around 15 to 20%. This is for staff turn-over.  The blue line at the top is the staff turn-over for the New Zealand dairy industry. As you can see, it fluctuates wildly from down 25% up to 40%, and it's exactly the same every single year.

If look there, September seems to be the time where everything peaks and it's no surprise to me that September is right at the end of calving after people have worked for two months, doing 60-70 hour weeks; they leave.  

750 Cow farm has 4 staff

If we look at what it looks like at a current dairy farm, if you've got 750 cows here in Canterbury. I've said last time that you have about one staff member to 180 cows. So that equals four staff.  Another way of looking at it is one staff member to 75,000 KGs of milk solids. If you have 750 cows doing 75,000 KGs of milk solids that equals four staff. That equals 300,000 KGs divided by 75,000 equal four staff. Essentially that is three employees and one boss. 

So what does that actually look like actually on the farm? 

I am assuming we've got a 60 bale rotary with automatic cup removers and centre pivot irrigation.  Two staff are going to be required to milk and they'll start at 4 am. They go 5,6,7,8,9,10,11,12pm, 1, 2, 3, 4. They'll go through to 5p.m. 

They will have lunch at one and breakfast at eight for an hour.  So that's an 11 hour day. Essentially, one person is always going to be off because they'll have their rostered day off. Depending on what the roster is, it depends what part of the week you have a full complement of staff, but generally speaking you're only going to have two staff plus the boss. Maybe the boss starts at seven and this will probably rotate around. But anyway the third person starts at seven and they'll go right through to five p.m.  So, basically they've got to milk twice a day and they've got to do other jobs.  

750 cows & 4 staff is fine, as long as nothing goes wrong

So having three people on the farm with maybe a relief milker helping out, that sort of works when everything is going well, when the weather is dry, when nothing is broken, where everything just goes according to plan. But as soon as something happens, like what if one of these guys here gets sick? All of a sudden that puts pressure on everyone else. Or if they just don't turn up which is often the case. As we've just seen, the massive staff turn-over rates, you can see that people are leaving all the time within the dairy industry. When someone leaves and you've got this staffing level, it puts pressure on everyone else. Everyone else is already working hard. They are already doing 11 hours a day, and if someone leaves all of a sudden that just puts a heck of a lot more pressure on them.  

Richard Kyte, "A Different Approach To Staffing In The Dairy Industry"

So, I want to talk to you about this report.  Richard Kyte, he was a sharemilker in Southland and now works for the Dairy NZ and he's also a consultant. He wrote this report called, ”A Different Approach to Staffing in the Dairy Industry.” His introduction says, "I believe that the New Zealand dairy industry is being compromised by understaffing on farms especially larger units of 600 cows or more. This has become a significantly greater problem in the last ten years and specifically on the South Island with larger farms." 

He goes on to say, "As the dairy industry grows, to maintain this growth it must attract and retain people within the industry. To do this, the dairy industry must compete with other industries". 

And that's what I was saying last week, dairy is competing with other industries. He goes on and he references Rupert Tipples from Lincoln University and Rupert says that 64% of dairy staff work 50 hours plus.  That's compared to 17% of the general population who work 50 hours plus.  

Richard also talks about Peter Sheehan who is a gen Y specialist. You should Google him. He's got some videos out there. He basically made the comment, "If the dairy industry thought 12 days on, two days off was a good roster it needed to get real. As five days on, two days off was the benchmark." He went on to say, “He's extremely surprised that dairy workers even accepted this.”  Richard goes on to say. “If five days on and two days off is the benchmark then 40 to 45 hour week is also a benchmark the industry should look for.". This comment is interesting. "The drive to reduce hours to date has been mainly from professionals looking in at the industry not from farmers themselves." Ain't that the truth!  

Richard added staff which cost $50,000, but increased turnover by $91,000. $41,000 more profit

So, the gist of what Richard was saying was that he went on and he decided he's going to spend an extra $50,000 dollars. When he was sharemilking on a 600 cow farm, he added an extra labor unit which cost him $50,000 dollars.  As a result of that, he had more time to manage his pasture, so he used the pasture plus system. He had less culls, less lame cows, less mastitis, and as a result of that he brought in an extra $91,000 dollars in extra income and savings. So $95,000 minus $50,000 equals $41,000. So he's still ahead by $41,000 which is about a 80% return. So he spent 50 grand to make an extra 41 grand profit. He spent more money to make more money. 

This is the whole thing, I think the level of staffing we've currently got is a false economy.  I think people think that four staff working on a 750 cow farm is the standard, it’s the benchmark.  But I think that you are losing money in all other aspects of your dairy industry. 

So, the interesting thing about Richard's farm is that he has a staff turn-over rate of two and a half years. So that means that his staff stays with him on average two and a half years and they move on basically because they want to progress in the industry, not because they want to leave dairying.  

So next time I am going to talk about how I would run a 750 cow farm and how I propose to pay for it.

Why Only A Small Number Of People Will Consider Working On A Dairy Farm

There are 60 new dairy conversions going into Canterbury this year. In This video I discuss how this equates to an extra 250 dairy staff been required, and why most "townies" won't even consider a job on a dairy farm.

I'm surprised by the extra staff required, but the numbers seem to be logical.

Please comment if you feel I have got something wrong.

You Tube link http://www.youtube.com/watch?v=UaSu1NRWwQU

Transcription

60 new dairy conversions in Canterbury for 2013 season

Hey, well I want to talk about dairy farm employment issues. So staffing, of all the issues that the dairy industry face, finding people to milk the cows is the biggest issue. So I was talking to a cow shed manufacturer. He said there's 60 dairy conversions going into Canterbury this year; and those are new dairy conversions. 

60 conversions x 750 cows (cant avg) = 45,000 extra cows into Canterbury 2013

Now the average herd size in Canterbury is 750 cows, so 60 times 750 equals 45,000 extra cows coming into Canterbury this year alone. That's not including Southland or the rest of the South Island; 45, 000 new cows into Canterbury. 

1 employee : 180 Cows. 45,000 cows / 180 = 250 new dairy jobs required

Now, there’s a rule of thumb, that you need around 180 cows to one labour unit. So 45,000 divided by 180 equals 250 new jobs. So that's actually really good news. We hear a lot about job closures and job losses, but the dairy industry has been charging away for a good part of a decade. Adding a heck of a lot of new jobs to the economy every year.

Where are these extra employees going to come from?

The problem is where are all the people to come from to milk these extra cows? Now traditionally for the last ten years at least, dairy farmers have been employing Filipinos and Brazilians and other international employees to fill the gap.

I was talking to a guy and I said to him - or he said to me, why can't the dairy industry attract all these people from town? And I said because of working condition. Its the hours of work. And people who have read my blog will know what I think about that . And he said, "I don't" -- he didn't except that anyway. He said, "No, no there's are plenty people who will go and work those different hours." And he mentioned people who joined the army and go on fishing trawlers and all sorts of things. So I had a little think about things and I have came up with a theory.

So if we draw a standard old bell curve, I would say that the people who fit into there, these are your 40 hour a week people. That's a majority of the population. A big chunk of people fit in there. People who go to work on a dairy farm are smaller, with much less of a number of people. And I am going to call it 60 plus hours. 

How many "townies" would apply for a "town" Job, if the hours were 4am to 5pm, 9 days on 3 days off?

Now, I'll tell you why I think that. I, as I said before I employ people myself and I run an ad in the paper that says " Customer Service Rep Monday to Friday, 9 AM til 5 PM," and we get heaps of response. And I can be quite picky of who we employ.

But if I put an ad in the paper and said "Customer Service Rep required, 4 AM to 5 PM, 9 days on, 3 days off," they wouldn't even bother applying. Its just totally unacceptable to them, they just couldn't even imagine starting at four in the morning, working all the way to five o'clock in the afternoon and doing that for nine days in a row, then give you three days off.

Its just not - they're not even going to considered it. So these are the people here who wouldn't even consider that. 

Now the number of people who will consider that are much less, a much lower number of people I'd say, about half the of number of people would consider that. 

No surprise, Dairy Farmers struggle to attract and retain staff

And it's absolutely no surprise to me at all that dairy farmer's cant find staff because there's better options. They can go building and start at seven in the morning or eight in the morning.

Dairy industry must provide 40-45 hour weeks

So I believe if the diary industry want to get serious about actually solving their staffing issues, I think they need to move the conditions over to the centre here. So the dairy farm staff need to start working 40-45 hour weeks, and regular weekends off, not just rostered days off. 

In the next video I'm gonna talk about what it would look like for a dairy farmer to transition their staff from sort of the 60 plus hours per week over to the 40 plus and what its gonna cost them. 

And I guarantee you right now, if the dairy industry could do that the majority of the staffing issues will just go away. ...

I've Got A Job!

My blog has been a little neglected lately. 

We have sold our house and bought a 4 ha lifestyle block. We moved into a rental two weeks ago and we will be living here while we build a new house on our farm lifestyle block.

Mrs Herud fired me last month and I no longer hold the position of "house husband", due to poor performance on my part.

I have now started a new job at the Community College in Rangiora. The college is starting an agriculture course aimed at 16-17 year olds who are not doing well at school or are simply not going to school any more.

My job is to develop an agricultural based course that will engage these young people, give them confidence and boost their self esteem, while also showing them what a great opportunity farming offers them. I also need to get them to pass NCEA!

There has been much talk recently in the media and on blog sites about youth unemployment in New Zealand. There are stories of businesses who can't find staff for entry level jobs, we hear about young people turning up to job interviews with disgraceful attitudes who are simply unemployable. 

I don't deny that these reports are true. In fact, I'm an employer too and I have first hand experience of employing generation Y and I have seen some terrible job applicants over the years.

I'll be dealing with kids who may have come from rough families with bad role models or kids who simply don't fit into school.

I'll keep you updated with my progress. The college are pretty open minded and I've got some pretty cool ideas on how we can put together a course that puts the funk into farming.

I'll also report back with my findings on the state of our young people in NZ and we'll see if I can make a difference.

The Sheep Industry Out Perform Fonterra. True Or False?

Sheep farmers receive 44% of the retail price of their products. So if a portion of lamb retails for $100 the farmer will receive $44.

The sheep industry is struggling with low profitability. The last 20 years has seen sheep farms converting to dairy because they offer a higher return.

Among sheep farmers, there seems to be an attitude that their meat companies are doing a poor job of marketing & selling lamb, both domestically and internationally.

There is a cockiness among dairy farmers around the returns the dairy industry are making. They seem to think the reason for the industries success is because they have an outstanding level of awesomeness and that the people running Fonterra posess superior business acumen, compared to the sheep industry.

I often hear both sheep and dairy farmers comment that, if the meat industry could just replicate Fonterra, then the industry would be a success.

Please take the time to listen to this 5 minute radio segment from The Framing Show. It's worth it.

Every Friday, dairy farmer Jason Uden & sheep farmer Jeremy Rookes discuss the topics of the week. There is no clearer example of the difference between sheep farmers and dairy farmers than these two.

Jason is a stereotypical dairy farmer, he has the high pitched voice with the Waikato dairy farmer accent. But the thing that stands out the most is his confidence that the reason for dairy farmers success, is their talent combined with Fonterra's superior performance.

Jeremy Rookes would sooner go broke than don the blue overalls and gumboots, which tend to be the dairy farmers uniform. Milking cows would go against his principles. Jeremy feels that the sheep farmers are doing all they can "on farm" and are being let down by the meat companies.

These two farmers pretty much represent the attitudes of their respective farming groups.

How does the sheep industry compare to Fonterra?

If we have a look at how the sheep industry compares to Fonterra in terms of providing value to the farm gate level. The percentage of retail price that the farmer retains is a good indication of how hard the Co-op is working for the farmer.

It's important to note that both the major meat processors/marketers and Fonterra are Co-ops. So their purpose is to return profits to the farmer shareholders.

Aaron Meikle (@AaronJMeikle) is the central South Island extension manager for Beef & Lamb NZ. We had a conversation via twitter, where Aaron produced the graph below.

That figure surprised me. Thats a high proportion. Apple, which is the most valuable company in the world receives around 40% of the final retail price of it's products. Apple is a company that develops groundbreaking products and has total control of its value chain and it keeps 40% of the retail price. (although electronics do have low margins)

So for a sheep farmer to keep 40% is a pretty impressive figure.

The above graph shows the type of lamb product mix that is exported. In the 1970's 85% of exports were frozen carcases which were processed off shore into retail cuts.
Today a majority of the processing is conducted in New Zealand and the lamb is processed into prepackaged branded frozen cuts. Which is obviously much more profitable.


How does Fonterra compare?

I can't find any official numbers which deal with the percentage of retail that dairy farmers retain, but we can get a pretty good indication.

At a $6.00/kgms payout a Fonterra supplier will receive around $0.50 per litre of milk. The supermarket is selling 1 litre of Anchor milk for $2.60. So, the farmers share works out to be 19%, which is less than half the return the sheep farmer is receiving.


They tell us that the domestic milk price is related to the export milk price, so it's safe to assume that the price of milk powder is similar to the price of milk. I would assume that the farmers share of the milk powder price would be similar.

While these figures are just an indication, it appears that the lamb processors are returning double what Fonterra is returning to it's farmers.

Whole milk powder is a base ingredient. The major food companies like Kraft and Nestle buy the milk powder and turn it into more processed retail products.

If we looked at a chocolate bar or a tin of infant formula and we calculated the portion of the final retail price that the farmer receives, I would guess it would be well below 10%. 

If we look at the graph above, I would liken Fonterra to the sheep industry selling frozen carcases in the 1970s.

The sheep industry are doing everything they are supposed to do, they have stopped exporting unprocessed carcases and are now producing branded retail products.

If we did as Jason Uden continually suggests on The Farming Show, and put Sir Henry Van der Hayden (former chairman of Fonterra) in charge of the meat industry. I don't think you will see any change to the fortunes of sheep farmers. Fonterra seems quite happy to continue supplying commodity products.

I would actually say, dairy farmers should get whoever runs the meat companies and get them to run Fonterra!

Imagine if Fonterra gave farmers 40% of the whole milk powder price. The payout would be $12.00/kgms! What would the payout be if Fonterra gave farmers 40% of the final price of a tin of formula!

So why then, is dairy farming more profitable than sheep farming?

I don't really know the answer to this, but we could look at it from two perspectives.

1. MIlk is just worth more than lamb

Lamb is the final product, it can't be made into anything else. Lamb chops stay as lamb chops. I suppose wool offers the ability to become a much more high value product, so there is potential there.

Milk is an ingredient in so many products and can be made into a much more high value item. The reports of a tin of infant formula selling for $80 in China is an example. 

2. A kg of dry matter can produce more milk than it can lamb/wool

Aaron pointed out to me that 30 kgdm (kg dry matter) will produce 1kg of meat/wool and you could assume that 15 kgdm will produce 1 kgms. 1 milk solid is worth $6.00 and 1kg of meat/wool is worth about $5.00-$6.00.

So a dairy farmer only needs half the grass to produce the same revenue. So dairy is twice as productive.

Conclusion

So to conclude, the dairy industry is more successful than the sheep industry in a large part because, milk is in demand and worth a lot of money. Combined with the fact that more milk can be produced from a hectare than meat/wool.

The assertion that the Fonterra leaders are doing a better job than their red meat counter parts does not withstand scrutiny.  In fact Fonterra could learn a lot from the meat companies.

For dairy farmers to sit there, smugly taking credit for the success of the industry, is like a home owner taking credit for the rise in the housing market.

Having said all that, theres no doubt that consolidation of the meat sector will have benefits. But this is more around the supply of lambs than the marketing and sale of lamb.

Sheep farmers should be proud of their industry. They are doing all the right things. 

Unfortunately for the red meat sector, Fonterra is at the bottom of the value chain, it has lots of room for improvement. All they need to do is move slightly higher up the scale and therefore receive more of the final price and dairy returns will be well and truly outstripping sheep.

A Real Story About Inflation

My Uncle was a cropping farmer in Zimbabwe. He purchased his first farm as a young man and worked it for couple of decades.

Robert Mugabe decided in 2000 to implement his "Land Distribution Policy".

The mob of "war veterans" arrived one morning and the beatings began.

My Uncle and his family fled to South Africa. They eventually immigrated to New Zealand.

Meanwhile the farm was distributed between Mugabe's loyal supporters.

But the bank had a problem. There was still a mortgage on the property.

The bank started sending my Uncle letters to his address in New Zealand demanding payment of missed loan payments.

He replied, how can I pay the loan when my farm has been confiscated? To which the bank replied pointing out the finer points of the loan documents.

Eventually my Uncle got out the currency converter and entered his sizable loan balance in Zimbabwe dollars and converted into NZD. 

The balance worked out to be a few hundred New Zealand dollars!

So he just paid it.

Since the backbone of Zimbabwe's economy was evicted from their land the country went into hyper inflation. The value of the Zimbabwe dollar dropped so much that a loan in the millions could be paid off with a few hundred NZ dollars.

While my Uncle lost his life's work when his farm was confiscated he still has his credit rating in tact.

To Feed The World, We Need To Fix The Politics, Not The Environment

They say there will be 9 Billion people in 2050. The popular question is "how can we feed that number of people?"

There is literally not a day go by where I'm not confronted with some sort of report, program or video about the challenge of feeding the world.

The common theme is we need to increase agricultural productivity to meet this massive demand. The view that we have limited resources that will make food production more expensive or difficult in the future is widely popular.

Some people who belong to the environmental movements, like to use the growing demand to push their causes, one such cause is to promote the vegan lifestyle as less cattle will reduce CO2 emissions. 

Businesses also jump on the band wagon, because it allows them to get subsidies that keep their business profitable when it otherwise would not be, solar panel manufacturers spring to mind. 

Other people are advocating genetic modification as the answer to the worlds food problems. This is often promoted by the GM companies or farmers. I wonder if both groups real interest is just to make more money.

It seems to me that no matter if you are politically to the left or right, environmentalist or smoke bellowing capitalist. All these groups can use the claim that "we have to feed the world" to meet their particular agenda.

I don't believe we have a food production problem. At least not in the sense that the earth can't produce enough food.

The real restraint on food production is political. It's the policies of governments that restrict the production of goods & services, of which food is one.

Zimbabwe Take my former home country, Zimbabwe. In the 1970's it was hailed as the bread basket of Africa. Yet the agricultural output of that country today is a fraction of what it was in the 1970s. This is despite all the technological advances that have taken place over the last 30 years.
This from Wikipedia

The University of Zimbabwe estimated in 2008 that between 2000 and 2007 agricultural production decreased by 51%.

Robert Mugabe is to blame. The president of Zimbabwe has created an environment in Zimbabwe where doing business/farming is very difficult and investor confidence has evaporated.

The single biggest initiative that Mugabe undertook was the "land reform programme". It was essentially a plan to expel white farmers from their land and redistribute it to Africans (aka war veterans from the 70's war of independence). I'm all for promoting more African land owners, but there are much better ways than this to do it.

The result was nearly all the farmers with the capital and knowledge were driven from Zimbabwe. These were the farmers that produced Zimbabwe's exports.

My Uncle was one of them. He purchased a cropping farm as a young man, the farm supported a whole village of African workers and funded many of their children's education. The farm was effectively closed over night.

The farm is now derelict, with the irrigation system, the buildings & other infrastructure all in disrepair. The farm now occupied by subsistence farmers.

The environmental conditions have nothing to do with the reduction in Zimbabwe's agricultural output.

Ukraine The Ukraine is another example of political decisions harming production.
This article from the Kyiv Post explains:

Ukraine is naturally endowed with 42 million hectares of agricultural land, 25 percent of the world’s richest black-earth soil, favorable and predictable climate conditions, and warm sea ports as well as other transportation links relatively close to export markets.
Yet, for example, the nation’s annual grain yields remain below the Soviet era, while former republics Russia and Kazakhstan now exceed those levels, according to the International Finance Corporation, the for-profit arm of the World Bank.

The article goes on

an October 2011 IFC survey found. It takes 375 days to deal with construction permits and 274 days to get electricity, according to the World Bank’s 2012 Doing Business report.

 And since Ukraine doesn’t have a single agency approach to food safety, agricultural producers must deal with multiple compliance regulations and messages from various government agencies.According to the IFC, only 1 percent of 13,000 food businesses have implemented global food standards such as HACCP, and 77 percent of agribusinesses interviewed in the IFC survey had no idea what GLOBAL.G.A.P standards were.
“Outdated product quality standards are one of the main barriers keeping local agricultural commodities and food products from gaining access to foreign markets, European in particular,” stated the IFC survey findings.

The Ukraine is famous for it fertile dark soils, yet the country is producing less grain than it did as a communist state. 

Farmers are held back by red tape and horrendous bureaucracy from government agencies more concerned about their power and jobs than the economy.

I read a story a while back, of a farmer who bought a tractor in Europe, disassembled it and brought it across the border as "parts" and then reassembled it again in the Ukraine. This was because he could not get a permit to import a tractor.

Import tariffs simply discourage technology uptake by Ukrainian farmers.

The Ukraine doesn't need the latest ground breaking agritech, it just needs some basic equipment and sound management.

Massive production gains can be made in the Ukraine, if the political problems can be fixed.

Canadian Dairy Industry The Canadian dairy industry cartel is another example of how government regulations restrict reasonable production by using subsidies and tariffs.
This article by FullClip Finance explains

Canadian dairy is a cartelised industry in that it is comprised of enterprises which restrict competition — through both import tariffs and output quotas — to fix the price of their products. 

OECD figures indicate that the amount that Canadian consumers over-pay for dairy products hovers around $3 billion (CAD) annually; we pay twice the world average.

If I were to wake up tomorrow and decide that I want to buy my own cow and charge my friends a buck for every litre of milk, someone would most certainly show up at my door and inform me that what I’m doing is illegal because I haven’t been issued a government quota. Lacking the $30,000 necessary to purchase such a quota, I would be forced to sideline my entrepreneurial ambitions. As for buying milk for my personal consumption, I’m not willing to take my chances of buying cheaper milk in Vermont only to have a 300% tax slapped on at the border.

Again Canadian dairy produce could flourish by simply adjusting government regulations. 

Argentina
Argentina is another example of government policy getting in the way of agricultural production. This article from ft.com elaborates

What does all that mean? Well, take a look: once the breadbasket of the world, Argentina’s wheat exports are sinking – indeed, the International Grains Council forecasts its 2012-13 wheat exports will be half the previous season’s levels.
Argentina’s romantic image of gauchos roaming the plains herding the cattle destined to become sizzling steak endures, but beef production is 25 per cent lower than it was three years ago and Argentina has failed to meet its Hilton Quota of high-quality beef to the European Union.

I could find examples all day long of government policy restricting agricultural production.

So I conclude, traditional growing areas of the world may be finding it difficult to continue to increase productivity, but thats not an indication of the planet not being able to sustain a larger population.

The view that the planet is maxed out and producing all it can is just not true.

A Telling Quote About Co-ops

“There seemed little room for entrepreneurial creativity; virtually every decision was politicized.  The most politically active members controlled the co-op with the own personal agendas, and much more energy was focused on deciding which companies to boycott than on how to improve the quality of products and services for customers.  I thought I could create a better store than any of the co-ops I belonged to, and decided to become an entrepreneur to prove it.”

This  quote is from Whole Foods CEO John Mckey. The quote is from his recent book Conscious Capitalism and Forbes has run an article about John and his book, which I found interesting.

John was a hippy in the 60s and 70s and was involved in a commune and various food co-ops.

It appears he became disillusioned with the co-ops and started his own natural food store which grew to be the now famous Whole Foods Market.

The quote made me think of New Zealand's most famous Co-op, Fonterra. 

“There seemed little room for entrepreneurial creativity; virtually every decision was politicized.  The most politically active members controlled the co-op with their own personal agendas"

Those words jumped out at me and I thought of Trading Among Farmers, which took Fonterra about 5 years to get through.

It highlights the major disadvantage of the co-op structure. Any "entrepreneurial creativity" has to be scrutinised by the members of the co-op and voted on.

Entrepreneurial creativity with the potential to produce high margins  by its very nature is risky, untested and unknown. For this reason it often does not get implemented.

Even if the managers of the co-op are able to try a few different things, they are voted out by the co-op members if the decisions are not popular.

For this reason, co-ops tend to be low risk low margin commodity businesses.

It's probably best they stay that way too.

The Carbon Neutral Dairy Farm. Is It Possible?

What does a dairy farmer have to do to become carbon neutral?

There has been much wailing and gnashing of teeth at the prospect of agriculture being included into New Zealand's Emission Trading Scheme (ETS). 

So I thought to my self, what would a dairy farmer need to do to become carbon neutral?

But first, why would a farmer what to be carbon neutral?

Some may say because it's the right thing to do for the environment.

Others will want to eliminate any tax paid on the carbon they emit. 

Other people will say that, being carbon neutral gives that farmer a wonderful point of difference in which to differentiate their products.

In order to avoid getting into a debate about whether climate change is real or not, I'm going to approach this from the marketing angle.

If a New Zealand farmer could produce a carbon neutral dairy product, then it should be able to fetch a sizable price premium and hopefully a greater profit.

This isn't a post about whether New Zealand should have an Emissions Trading Scheme (ETS) or even if agriculture should be included.

Rather this post is about what would a farmer have to do to be carbon neutral, what would it cost and can they make a profit from being carbon neutral.

What are the emissions from a dairy farm?

Its quite easy to calculate a farmers emissions and then simply buy carbon credits, but thats too easy and not much fun, and I doubt consumers will pay a premium for that story. 

The best resource on agricultural emissions and off setting options is this report by PA Handford and Associates.

To understand how to become carbon neutral we need to understand what emissions a dairy farm produces. There is carbon, nitrous oxide and methane.

1kg of methane emitted into the atmosphere is the same
as for 21kg of carbon dioxide.  Using the same scale, 1kg of nitrous oxide has the equivalent effect of 310kg of carbon dioxide.  Approximately two thirds of agricultural greenhouse gas emissions are as methane and one third is nitrous oxide.

As I understand it, there is no way of absorbing methane or nitrous oxide from the atmosphere, but we can absorb carbon from the atmosphere via trees and plants. So if a farmer emitted 1 kg of methane & 1 kg of nitrous oxide then they would need to offset (absorb) 321 kg of carbon to compensate. Because of this, these three emissions are combined into what is called a CO2-equivalent or NZU.

Dairy Farm case study  
This case study is based on a South Waikato dairy farm producing 210,000 kg milk solids (2007/08) from 535 cows on 178 ha.  Included in the operation is a 40 ha dairy run-off, 140 yearling heifers and 120 rising two year old heifers.  

As you can see from this table the emissions from fuel and electricity is a fraction of the total emissions. For a farmer to try and reduce those emissions by using solar power and wind turbines etc, will look like your're environmentally friendly. But will not have a great effect on the total emissions.

The big producer of emissions is the cows via nitrous oxide and methane.

The total emissions are 1929 tonnes of CO2 or NZU. This figure needs to be absorbed or sequestered. 

The carbon cycle

From what I can gather, trees need carbon to grow. As they grow they absorb carbon via photosynthesis. At 30 years of age a pine tree will have absorbed a certain amount of carbon and it will be contained in the tree.

If you were to chop the tree down at age 30 and burn the tree for fire wood, then all the carbon that has been absorbed by the tree, will be released back into the atmosphere. Which leaves you in the same point as you were 30 years earlier. Like wise if the tree falls down and decomposes, then over time the carbon will be released into the atmosphere too.

But if the tree is made into framing timber (for example) and used to build a house then the carbon stays locked in the wood. Which is what we want.

So how many trees to we need?

The report states,

However we have chosen a conservative figure of 22 tonnes CO2 /ha/yr for radiata pine. This has been calculated based on indicative forest sequestration tables for pruned and thinned radiata pine plantation on medium fertility site (Paul et al., 2008). By way of comparison we have chosen to use the average rate of 3 tonnes CO2 /ha/yr for reverting native bush, as described in the look up tables.

1 ha of 18 year old pine trees will absorb 22 tonnes of carbon per year. The above dairy farm has total emissions of 1929 NZU per year.

1929/22= 87ha!!!!

Wow! This farmer will need to have 87 ha planted in pine trees that are at least 18 years old, in order to be totally carbon neutral. That's 48% of the total farm area will need to be in trees! 

But its more complex than that too, because a hectare of 18 years old pine trees are absorbing the maximum amount of CO2 of its life. A stand of 5 year old trees is only absorbing a very small amount of CO2 and 10 year old trees are absorbing well below 22 tonnes.

So this farmer will also have to plant additional trees every year for 30 years and establish a mixed age forrest. 

For example this farmer would need to have 87 ha in mature forrest, they would harvest say 5 ha every year and then also plant 5 ha per year. This way they will always have 87 ha in forrest at any given time.

How do the numbers look?

A logical way for a farmer to approach this situation, is to buy 87 ha of trees. I'll assume that they are 18 year old trees, just to make things simple.

Lets say they buy some cheap land with a forestry block on it for $25,000/ha.

25K*87ha= $2,175,000

Assume that a 50% deposit of $1,087,500 is paid and the remaining balance is serviced over 30 years.

$1,087,500 @ 7% interest = $86,820/year.

This farmer needs to make an extra $86,820 to cover the cost of being carbon neutral. The farmer also needs to get a decent return for their investment, I'll assume a 25% return is appropriate return for such an investment.

The return on capital of 25% for an investment of $1,087,500 = $271,875/year.

The farmer will also need to bring in an extra $86,820 to cover the P&I of the loan.

So a total additional income of $258,695 would be required to meet the additional cost and a return on capital of 25%.

Assuming production stays the same at 210,000 kgms/year then the farmer would need a payout of $8.20 which is a 26% increase on the base payout of $6.50.

Which is actually quite possible, I think a 26% price premium is achievable.

Lets look at it another way.

Fonterra's milk brand, Anchor is selling for $2.30/litre at my local supermarket.

Our dairy farmer receiving a payout of $6.50 is actually receiving $0.52/litre for their milk. In order for this farmer to receive an additional $258,695, they just need to receive an additional 0.11/litre for their milk.

Lets pretend that Fonterra is selling this farmers milk as, carbon neutral milk. The farmer gets an additional $0.11/litre, I'll assume the processor/Fonterra adds an extra $0.11/litre to the price and finally the supermarket also adds $0.11/litre to the retail price.

Together they have added $0.33/litre to the price, that makes the final retail price $2.63/litre of milk. 

Even if I have underestimated my numbers, there is still lots of room to increase the retail price to compensate.

Organic milk is currently selling for over $3.00/litre.

Conclusion

What I wanted to show with this post is that it's not out of the realm of possibility to produce a carbon neutral dairy product and its not necessarily going to be obscenely expensive to produce either.

Obviously there are many questions around finding an appropriate forrest etc. For the record, I don't believe a pine forrest is a good carbon sequestration crop. Simply because it takes over a decade for it to start really absorbing carbon. There are a number of other plants/crops that can sequester the same amount of carbon/ha as a mature pine forrest, but can do it at 2-5 years of age. I'll post about these options another day. 

No one in agricultural circles are even contemplating a 100% carbon neutral product. All the talk is about how paying a small percentage of their carbon emissions is simply increasing costs with no benefit, and I agree. It is simply a cost increase with no increase in benefit.

To be partially in a ETS system is a half way compromise from a marketing standpoint. You have a cost increase but you can't go to carbon conscious consumers and ask for a premium price for your product, because you're not carbon neutral, or even close to being carbon neutral.

While the numbers above are a bit rough and ready, they show that being carbon neutral is possible and it would only require a 20-30% increase in retail price. Which is really quite achievable.

If you look at any product category, there is the cheap brand, the middle of the road brand, the expensive brand and the bloody expensive brand. The two most expensive brands will often be selling their products for 100-200% more than the mid point brands.

Lets look at eggs, mid point brands sell for .45c/egg and free range brands are selling for $1.00/egg. Thats an 122% increase in price.

For milk, all you need to do is get a 20-30% premium to make it worthwhile.

What would a carbon neutral block of cheese sold in London be worth?

Imagine the brand power and the story that could be told of a little country at the bottom of the world where the farmers use an integrated forestry farming system, that can produce a carbon neutral block of cheese. That gets shipped it to the other side of the world and still be affordable.

Well, affordable to rich people at least.

Thats pretty hard for farmers in other countries to copy.

Milk powder in a brown bag shipped to china is pretty easy to copy and pretty low value too.

Regardless of what you think about climate change. There is lots of opportunity and big margins out there for low carbon products.