Fall in farm conversions prompts interest in horticulture, honey and alternatives such as sheep milk.

For two decades land has been converted to dairying in a "white gold rush" - but the tide is turning as low prices hit farmers' wallets and consumers hunt for alternatives.

The days of large-scale sheep and beef farms and forest estates converting to dairy appear to be numbered, bringing a change in ideas about land use.

Once derided alternatives such as sheep milking are now being taken far more seriously.

Fonterra's farmgate milk price this season is forecast to be $4.25 a kg of milksolids - well below DairyNZ's $5.05/kg estimate of break even.

Advertisement

It would be the third year of low prices and a far cry from the record $8.40/kg paid to farmers in 2013/14.

ANZ rural economist Con Williams estimates that only a handful of dairy conversions are under way.

"From the mid 1990s there has been expanding land use issues from sheep and beef into dairy production, but that has obviously dried up with dairy returns falling," Williams says.

"People are looking at a whole range of options as to what they could do with their land - whether it's sheep dairy, or goat dairy," he says.

In kiwifruit - heavily represented in the Bay of Plenty - there is interest in diversifying risk out of the region to other parts of the country.

"There are a whole range of things that will look a bit different to where they have been over the last 10 to 15 years."

Manuka honey is on the way to becoming a $1 billion industry but there is also growth in horticulture - with avocados, cherries, pipfruit and viticulture all looking to expand.

Williams says he does not expect sheep and beef farms to lose quite so much land to dairy in the years to come.

The dynamics have completely changed, Williams says, and water quality requirements will play a greater part in influencing investment in the future.

For Steven Carden, who heads up Landcorp, agriculture is going through a sea change.

"New Zealand has been incredibly effective as farmers, but the secret to our success in the past has been about stressing assets, and driving production per hectare is not a model that is going to work any longer," Carden says.

In March, the state-owned farming company rowed back on a major dairy conversion project near Wairakei, in the central North Island.

The original plan was to put 40,000 cows on that 14,500ha block but Landcorp has pared that back to 21,000, partly due to the ongoing volatility in dairy prices. Despite the current downturn, Carden and others remain optimistic about dairy.

"It's been tremendously successful and I think there is recognition now that there is starting to be decreasing land available for conversion - not suitable for conversion from an environmental and a commercial perspective," he says.

Landcorp, in various forms, has been around for 130 years.

"We have had a long history in New Zealand agriculture and I think that for 120 of those years Landcorp and New Zealand agriculture have been all about production - producing more milk and more meat per hectare of land.

"Landcorp has decided that the model that we have always used - to stress our assets more, to get more out of our animals, our people and the environment, is just not sustainable any longer," he says. "We can't continue to cost-cut our way to victory through productivity gains.

"We have to look at ways that we can actually grow our top line and extract more value from our land and from our assets."

People are looking at a whole range of options as to what they could do with their land - whether it's sheep dairy, or goat dairy.

SHARE THIS QUOTE:

Carden says Landcorp - which has 850,000 animals on farms up and down the country - is a microcosm of what is happening in New Zealand.

He says the decision to curtail the Wairakei development was a reflection of the environmental pressures and a recognition that it was too exposed to volatile commodities like dairy.

"We needed to change our product mix, which then leads to a change of our land use and the prices that we are generating off that land," he says.

"So we have been really strategically focused on those alternative uses for land to develop new products that have better environmental impact but also a better commercial and bottom line impact - hence the sheep milk, deer milk and a number of other alternative land uses that are going to align our business to where the big global consumer trends are going with food in the future," Carden says.

"Commodities are becoming more volatile and dairy is the most volatile of them all. That has a major impact on farms and their ability to manage cashflows effectively, so people are looking at ways of reducing volatility and risks within their businesses.

Fonterra's farmgate milk price this season is forecast to be $4.25 a kg of milksolids - well below DairyNZ's $5.05/kg estimate of break even. Photo / David Kerr
Fonterra's farmgate milk price this season is forecast to be $4.25 a kg of milksolids - well below DairyNZ's $5.05/kg estimate of break even. Photo / David Kerr

"The growth of the alternative dairy categories on the supermarket shelves is an example of people wanting alternatives to the traditional foods that they have [as] consumers, particularly in the west."

Landcorp created its Pamu brand for various products to reflect the greater consumer interest.

"We've maxed out our assets and so we have to find alternatives, which means getting close to your customers - looking for those niche markets which, by definition, means getting out of commodities ," he says.

"But the challenge ... is that you have got to be unique, so we need to be thinking about what we are producing as a country and as a company."

Carden says there is huge interest in the company's deer milk research and development.

We have to look at ways that we can actually grow our top line and extract more value from our land and from our assets.

SHARE THIS QUOTE:

ASB Bank rural economist Nathan Penny says the days of 5 to 6 per cent year-on-year production growth in dairy are gone, but he remains positive about the sector's future.

"We have seen a correction lower, but I do think that once that plays out, we will start to grow again," Penny says.

"I would expect that the growth, when it starts again, will be lower than the average over the last 10 years ... it will be more like 2 or 3 per cent over the long term, which is more sustainable in the long run."

Sheep milk venture eyes global market

Spring Sheep Milk aims to tap into a US$8 billion world market.

"With some effort, and with the right people involved, and the right technology, there is no reason to believe that New Zealand can't make it a very good industry and be globally competitive in the long term," says chief executive Scottie Chapman.

Spring Sheep Milk - a joint venture between Landcorp and boutique sales and marketing company SLC - was established in June 2015.

New Zealand has two other large-scale sheep milking companies.

Southland-based Blue River Dairy is Chinese owned and has been going for 10 years.

The other, Maui Milk Company, operates on the southwestern side of Lake Taupo, is 60 per cent owned by Chinese investors and 40 per cent owned by local Maori interests.

Alternative dairy is growing very quickly, with sheep, goat and almond milk growing at about 20 per cent a year.

SHARE THIS QUOTE:

Chapman says most of Spring Sheep's milk is made into nutritional milk products for the Asian market.

Spring Sheep's aim is to create high-value branded nutritional and luxury food products made from sheep milk and export them to growth markets, starting with Taiwan, Chapman explains. Sheep milk is rich and creamy, nutritionally dense and easy to digest, he says.

The company is working to build the market first and the business is already producing commercial quantities of sheep milk from a flock of about 3000 animals near Taupo.

Farming sheep for milk has been around for thousands of years.

"Alternative dairy is growing very quickly, with sheep, goat and almond milk growing at about 20 per cent a year," he says.

It takes 20 sheep to make the same amount of milk as one cow.