COMMENT:

Heartfelt pleas from Australian dairy farmers in August indicate all is not well in the Lucky Country.

The Herald covered the story, highlighting the farmer's concerns: "I worked for A$2.46 ($2.71) an hour. Something has got to change. You can't keep this sh*t up."

Another couple explained that they earned A$500,000 a year but were going broke.

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Outgoings for bank payments, feed costs, electricity, insurance, maintenance and vet bills were more than income from their cows. Add living expenses and the couple, who are in their 60s are increasingly in debt.

They have explained that the drought has brought extras pressures, but the basic problem is that the milk price is not covering costs of production.

"We need our milk price to lift to a level that would cover our expenses each month, allow us to continue to invest in our farm, and have some time off".

They also want their family to see a viable future working their family farm – which they can't under current conditions.

What is happening in Australia is also happening here.

Not the drought (yet), but certainly costs increasing – electricity, wages, vet bills and feed to cover lack of grass growth during an extremely wet winter.

And here the forecast milk price has actually decreased over past weeks. In addition, Fonterra is paying no dividend on the average farm investment at the current $4.98 share price of approximately $800,000 (beyond the 10c a share in April) to shareholders.

DairyNZ estimated that the average costs of production per kilogram of milk solids last year was $4.60. All grass farmers had operating costs of $4.47, whereas farmers who feed supplements as well had costs of $4.72… but ultimately had 19.4 per cent more profit per hectare.

Fonterra farmers are receiving $3.95 a kilogram for production each month with the balance between this and the 'final forecast' announced at the end of the season, 'drip-fed' through the second half of the season.

New Zealand dairy farmers are operating in the red, just like their Australian counterparts, and many farm owners are working very long hours for the privilege – well below the minimum wage.

With this in mind, it is disappointing that some analysts have said that Fonterra is paying too much to its suppliers.

The point about a co-operative is that it works to create shareholder value. In the case of Fonterra, the shareholders are the farmers who supply the co-op with raw product.

Covering costs of production and allowing investment for the future should be the bottom line.

Private companies also work to maximise shareholder value, but the shareholders are not necessarily the farmer suppliers.

The private milk processing companies in New Zealand have at least some foreign investment and overseas owners. The private companies need to maintain supply by paying suppliers 'enough'.

What that generally means is 'about the same as Fonterra', remembering that Fonterra suppliers have money tied up in their co-operative which could otherwise be used on farm; suppliers of private companies have liberated that money for their own investment.

The milk price in New Zealand is set by Fonterra based on the global dairy trade price.

Through the overseas processors and distributors, including the supermarkets, the end point is the consumer and 'willingness to pay'. Judging by the social media squeals of outrage each time there is a price increase in dairy products, willingness to pay is not high.

Yet farmers are facing more and more costs, many of which are to do with keeping consumers safe, meeting their welfare expectations and ensuring environmental protection.

A survey of Waikato/Bay of Plenty dairy farmers by AgFirst consultant Phil Journeaux makes the issues clear.

Cost of complying with regulation (including animal welfare, food safety, health and safety, and environmental issues, with the latter including the Emissions Trading Scheme) remains a major concern.

The sad outcome is that current farmers are struggling and dairy farming is not seen as a good career path.

Farmers in Australia have pleaded for a better deal; farm viability and the survival of the family farm is at stake.

What is true in the so-called Lucky Country is also true here.

Consumers can make a difference by accepting that food prices will have to increase to reflect the increased costs of production.

- Dr Jacqueline Rowarth has a PhD in Soil Science and has been analysing agri-environment interaction for several decades.