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Editorial: Dairy turmoil shows folly of narrow focus

while dairying is profitable again, many farmers and sharemilkers are carrying high debts from a downturn that lasted longer than they or their banks expected. Photo / Brett Phibbs
while dairying is profitable again, many farmers and sharemilkers are carrying high debts from a downturn that lasted longer than they or their banks expected. Photo / Brett Phibbs

Farming does not get the public attention is deserves these days, until this time of year when any road journey out of the cities reveals what a wealth of beauty and prosperity the countryside contains. Many farms somehow managed to look prosperous to the urban eye even when the main industry of most - dairying - was in the doldrums. But at least this summer, city holidaymakers on the roads can look at those verdant pastures and know that this, at last, is a happy new year for rural New Zealand too.

After two years of depressed dairy prices, the market began to turn in the middle of last year and for the past few months the price of milk powder has been back above break-even levels for most producers. Furthermore, there is every reason to believe the slump is over. The over-supply that caused it, largely from Europe, has been reduced or consumed and this season's supply better matches demand.

But while dairying is profitable again, many farmers and sharemilkers are carrying high debts from a downturn that lasted longer than they or their banks expected. It will take at least two more years of careful budgeting to bring those farm balance sheets back to where they should be. Rural servicing towns might not see much of the improved dairy payments for a year or two yet.

But this is the time to congratulate farmers who have hung in there, working for no financial gain over the past year or two, hoping the market would come right before the forbearance of their bankers expired.

The banks, too, deserve credit for carrying many farmers through a time such as this. Their faith in milk commodities must have been tested as the price continued to languish. Yet we have not had reports of foreclosures and forced sales of farms and herds that could have been expected.

Fonterra helped them too, operating a deferred payment system that means some of the high milk powder price of 2013/14 was paid out in 2014-15, keeping their payment well above the $5/kg break-even level. It meant that producers did not really feel the pinch until last season, the second year of the slump when the market price sank to $3.90/kg.

At the last auction of 2016 the price had doubled since the beginning of the year and Fonterra has raised its farmgate payment to $6/kg. Before this season has ended it could be up to $6.50.

In this way New Zealand's dairy industry, the world's largest exporter of a commodity not heavily traded internationally, has outlasted its rivals who are heavily subsidised.

It credits its survival to the economics of pasture grazing, which will not please environmentalists monitoring rivers and streams. Cattle effluent is putting too much nitrogen into waterways, and responsible farmers are taking steps to reduce it, but further dairy conversions would seem unwise.

For economic reasons as well as environmental, farmers must be wondering if too much has been invested in dairy. Prices in a thinly traded commodity are bound to be volatile and farms need their eggs in more than one basket. They have come through this slump stoically, but how many want to do it again?

- NZ Herald

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