Just make sure the numbers add up

Taranaki Dairy Technologies' Howard Moore talks about the highs and lows of doing dairy in the Middle Kingdom

Howard Moore is currently in action in China's startup scene with Taranaki Dairy Technologies. Photo / NZH
Howard Moore is currently in action in China's startup scene with Taranaki Dairy Technologies. Photo / NZH

The first thing you should know about China is that the numbers can be deceiving. They're just the cream on top...

• 5m cows
• 400m hectares of grassland
• 0 per cent income tax on farming

Howard Moore, of Taranaki Dairy Technologies (TDT), has been around the block a few times in the last two years, enough to know the stories behind the nice-sounding numbers. He explains the actual number of productive milking cows is probably more like eight to nine million, comparable to New Zealand's roughly six million.

And the trouble with the 400 million hectares of grassland is that the grass is a native, very slow-growing variety that makes for poor nutrition when the farmers make hay in late summer.

And that zero per cent income tax on farming is only for those farms that don't move beyond the raw product. As soon as you start to pasteurise, process or package, there's tax.

But there are certain numbers, ones that caught his eye when assessing an investment opportunity in 2010, that he says speak a little louder:

Compare that to New Zealand, where Moore reckons feed costs are more like 50 per cent of total costs. Excluding peasant farmers, virtually all farming operations in China buy their feed, including Fonterra's dairy farms, he says.

TDT found the cost difference worked out to be about 1 RMB (20c) per litre. That is, a litre of milk costs around 2.6 RMB to produce in China when you buy feed, and 1.6 RMB when you grow your own.

Discovering this, Moore says, was "a eureka moment".

TDT was started in 2010 primarily to take advantage of this opportunity. Their model involves growing both alfalfa and grass, and knowing the tricks involved to make good silage out of both. Their heifers are imported from Australia.

They partnered with Chinese international trade company Fortune Link on a farm based at Heihe in Heilongjiang province. There is also a second project based in the Jiamusi prefecture.

One of their biggest challenges has been changing entrenched mindsets, fighting to prove that producing feed and running farms the Kiwi way will make for more milk and less cost.

Farming is traditionally the domain of small-scale peasants. The average farmer of alfalfa in China produces around just one hectare, he says.

"What works in China? Making iPads in Shenzhen - modern technology in modern ways. Don't continue to bash away with the old peasant model, it doesn't work.

"What is working is building large farms with thousands of cows and investment of large amounts of capital.

"They get locked in paradigms here. We all have our paradigms but the Chinese are very hard to move out of their comfort zones."

But the biggest challenge, the one that makes everything else "pale into insignificance" lies in keeping control.

"You have to have control or a very close partner, who you love dearly and who loves you dearly, and you have control between the two of you," he says. "And that means 51 per cent. Always you've got to have 51 per cent and also be in a position to appoint the chairman because the chairman in China, he holds the chops [official company stamps]."

There is also a Chinese tendency to want to fast-track growth. You can see evidence of the mindset in the infrastructure that springs up overnight, and equally in the neighbourhoods that are levelled just as quickly.

And in his line of work, Moore says it comes back to the fact that just because you can do something, doesn't mean you should.

"It runs counter to the way the Chinese want to go, they've got this idea that you just go hell for leather, big is beautiful. But because things don't always turn out as they should and they're always a bit unpredictable, I reckon slow and steady does win the race in China." Special correspondent

• NZ$90 per hectare - that's the yearly lease cost of grassland in China's northeastern Heilongjiang province, bordering Russia.

• 70 per cent the percentage of total costs Moore estimates is spent on feed by the established industry players. It's often alfalfa imported from the US and local silage.

Howard Moore is a veteran of the New Zealand dairy and biotech industries and is currently in action in China's startup scene with Taranaki Dairy Technologies.

- NZ Herald

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