KEY POINTS:
The number of dairy farms in New Zealand could drop from about 10,000 to 6000 in the next decade, says dairy farmer and Fonterra director Mark Townshend.
Waikato-based Townshend, who is involved in farming in New Zealand, Chile, the United States and Russia, said the need to achieve
economies of scale was "a reality in a commodity world".
He was speaking yesterday, as a dairy farmer, before addresses to agricultural conferences in Dunedin this week and Christchurch next week.
Townshend said there were about 10,000 farms with an average of 320 cows, while in 10 years there might be 6000 with an average of 600 cows.
An example of the trend towards bigger farms was that in the past few years the number of farmers leaving Fonterra was three to four times the number of new supplier applications "but in cows and kilos [of milk solids] they actually offset each other".
The average herd size of those leaving was 130 to 140 cows and 600 cows the average of the new.
Farm amalgamations added to the bigger farm trend.
"Every year in Waikato or Taranaki there'll be 2 per cent or 5 per cent of the farms [that] are bought by neighbours and combined into one."
Further aggregation would occur through a variety of investment models but he believed farming families would grow their businesses "by hand-picking the very good young people who work for them and perhaps back them into doing an equity position".
Townshend said one of the dangers of rising farm prices was that "if you build the price of land through into the cost of grass, we struggle to be the most efficient producers in the world".
He noted that a lot of the money made in dairying in recent years was capital gains rather than cash profits. People now buying land were often those prepared to have existing farming operations subsidise more expensive new ones. Or they could use collateral from capital gains to borrow for business growth.
"The moment the capital gain stops, slows down ... that does become somewhat unsustainable."
Brian Peacocke, of Pastoral Realty in Te Awamutu, said yesterday that Waikato region dairy farm prices had peaked several years ago, backed off 15 per cent to 20 per cent, then recovered about half their losses, and were steady around that level. He expected that trend was mirrored nationally.
Meanwhile, Townshend said there was strong potential for New Zealanders to make good returns from dairying abroad, a move which could also take pressure off land prices here. He predicted that leasing could become more popular with new entrants to farming.