Editorial: What certainty has to do with the price of milk

EDITORIAL:

Life on the farm has never been easy, and the unease facing current dairy producers can be readily appreciated.

This week, it was reported tight credit conditions and concerns about environmental compliance are curdling what looks like another season of firm milk prices for dairy farmers.

On the face of it, up to and excess of $7 per kg for milk prices would appear to be great news and some cause for jubilation at the farm gate.

Fonterra has forecast a wide range - its widest ever - of $6.25 to $7.25 per kg - for 2019/20, against $6.30 to $6.40/kg last season, with bank economists expecting the price to gravitate towards the top and of that band and perhaps beyond.

Dairy NZ's latest estimate of breakeven is $5.95 per kg of milk solids.

The news is tempered by the Reserve Bank's latest financial stability report, in which it said breakeven for farmers at the high end of the debt scale was $6.20/kg. The Reserve Bank estimates around a third of dairy debt is held in farms with high debt to income ratios.

Also troubling is the pending release by the Government of a new freshwater National Policy Statement and National Environmental Standards, both in August.

No one is debating whether farming has impacted on the environment. Most producers have at least tacitly accepted this by making proactive and positive changes to practices identified as most detrimental.

The freshwater National Policy Statement has been a work in progress for five years - first issued in 2014 and amended in 2017 - which seeks to direct regional councils on appropriate in-stream concentrations and exceedance criteria for nitrogen and phosphorus to achieve periphyton objectives, while ensuring the outcomes sought for sensitive downstream environments are also achieved.

National Environmental Standards, particularly on ecological flows and water levels, are intended to promote consistency in the way we decide whether the variability and quantity of water flowing in rivers, ground water systems, lakes and wetlands is sufficient.

Both these initiatives need to exhibit clear and achievable objectives, for everyone's peace of mind.

The New Zealand Institute of Economic Research says the dairy sector accounts for 20 per cent of our total exports (goods and services). Strong growth of dairy export prices, driven by robust demand from emerging markets, has already improved New Zealand's terms of trade dramatically since the early 2000s. This has boosted all Kiwi households' and firms' purchasing power.

Dairy farming is the largest purchaser in the economy of: agriculture, forestry, and fishing support services; building cleaning, pest control, and other support services; basic material wholesaling; veterinary and other professional services.

The Government has already given dairy farmers a fillip by dropping the Tax Working Group's proposed capital gains tax, as well as an assurance of no resource rental for water or fertiliser tax - at least in this term of Government.

The flow-on effects to the economy, just as has farming to our waterways, depend on getting it right with these next environmental measures and being absolutely transparent about how we plan to do that.