The number of cows in New Zealand is static or declining and dairy conversions have slowed to a virtual standstill — so is the country's biggest export industry passed its peak?
Reports from regional councils suggest that the number of properties being converted into dairy farms has slowed to a trickle, remained static, or gone backwards in some areas.
All up, it looks as though the area of land devoted to dairy may be shrinking.
Milk production has also stopped increasing. It hit a record in the 2014/15 season, when 1.89 billion kg of milksolids was produced.
Production has since wavered just below that figure, at the 1.85 billion kg mark.
In the season just finished, the figure was 1.88 billion kg.
Over the same period, the number of dairy cattle has dipped. Last year there were 6.4 million animals in the national herd, compared with the 2014 peak of 6.7 million.
Dairy remains by far New Zealand's biggest merchandise export, worth $14.1 billion in the year to last June.
And despite the signs, ASB senior rural economist Nathan Penny says it is an open question whether production has peaked.
"My personal view is that we are not there yet," he says. "If we can increase productivity or even hold production and decrease inputs, then that would be a good result.
"With technology and better genetics we could end up with fewer cows and more milk," says Penny.
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"It is very possible and it would be a good result if we can do that because the world still needs more milk."
However, Penny agrees that the number of conversions is now close to zero, or even slightly negative.
While dairy looks to have plateaued, competition from other land uses has been hotting up.
Incentives for forestry are taking some productive land out of the mix, he says, and then there is competition from the beef sector and even sheep's milk, but also from kiwifruit and avocado orchards.
"In the Bay of Plenty, if there is much dairy land left, it is probably heading the way of kiwifruit," Penny says.
In the Waikato, some farmers are looking to diversify — carving off a portion of their land off to grow kiwifruit, for example.
"Looking at the trends — those trends are going to continue in the medium term — it does point towards the effective land area devoted to dairy falling," he says.
"Logically that would suggest the number of cows also falling. These are the trends that are in play."
Shine goes off
As well as competition from other land uses, tight borrowing conditions and worries about environmental compliance are taking the shine off firm milk prices.
Fonterra has forecast its widest price range ever for 2019/20 — $6.25 to $7.25 per kg, against $6.30-$6.40/kg last season.
That compares with Dairy NZ's latest estimate of the price needed for the average farmer to break even: $5.95/kg milk solids.
"Dairy is definitely harder than it was, but in many ways dairy is not unique in that sense," Penny says.
"If you look at pretty much any industry, there is more regulatory compliance involved and, as a result, more cost.
"One of the things that has changed, is relative dairy returns have fallen or the returns from other land uses have risen and narrowed the gap, or overtaken in many cases, so there is competition from other land uses — horticulture, meat, forestry and even housing," he says.
Prisoner of success
As Penny sees it, the rapid rise in New Zealand dairy sales to China as a result of the 2008 free trade agreement has in a sense made dairy a prisoner of its own success.
Demand from China prompted the initial dairy price boom, which in turn awakened China's rising middle class to New Zealand's other commodities.
In a very short time, New Zealand's other key products — sheepmeat, beef, kiwifruit — have all followed in dairy's footsteps in the People's Republic, which has increased the pressure on land use. "There has been a sequencing to all that — and dairy was the first cab off the rank.
"Dairy prices boomed before kiwifruit prices, and before lamb prices; what we are seeing now is that dairy is not the outlier that it used to be.
"If you look back 10 years dairy was the outlier."
From cows to orchards
ANZ rural economist Susan Kilsby expects production to level out from here, and she says overseas buyers may be in for a rude shock when they discover New Zealand can no longer make up the difference when global supply runs short.
There was an expectation that costs would rise alongside tighter environmental standards and sustainability in general.
"My view is that it will be relatively stable going forward," Kilsby says. "Any ups and downs will be associated with the weather — a good season versus a poor season — as opposed to the industry changing a whole lot."
Kilsby expects production to be flat for the next five years.
In terms of other land uses eclipsing dairy, the returns really need to be demonstrably higher, she says.
"Horticulture certainly offers that, and we've seen that in the Bay of Plenty and Northland."
While dairy land in the Bay of Plenty is going into kiwifruit, in Hawke's Bay it is being turned into apple orchards.
In 2018/19, 12,747 producing hectares were planted in kiwifruit and the industry is aiming to have another 7000ha planted by 2025.
Kiwifruit production is expected to jump from 158 million trays in 2018/19 to 190 million trays in 2027, while the industry's revenue is expected to double from $3b in 2018 to $6b by 2030.
And some dairy farms are going back to beef, as they get older and the farm infrastructure nears the end of its useful life.
"In the more marginal dairy areas you are seeing a bit of flux between dairy and beef — at possibly accelerated rates given the higher returns for beef," Kilsby says.
"The gap between dairy and sheep and beef was massive a decade ago, whereas now the gap has closed somewhat."
Changing land use could have an impact on the international dairy trade, where New Zealand has typically filled the gaps in overseas production.
"The overseas people still think that we will be there filling that gap — or producing more milk to meet demand — whereas here in New Zealand the consensus is: No, we won't be".
Federated Farmers dairy chair Chris Lewis says confidence is low in the dairy sector, pointing to this week's purchase of Hokitika-based Westland Milk by China's Yili.
Dairy conversions, or the lack of them, have been a key talking point.
"Twenty years ago there were a lot of conversions to dairy because it was the best return on investment," Lewis says.
"Now, simple economics suggests that dairying is no longer number one, it's down the list a bit more.
"To convert a farm and to put irrigation in — the numbers are not as good as they were 10 years ago."
Lewis says it is not uncommon around Te Puke and Tauranga to see new dairy sheds surrounded by kiwifruit. He notes that new dairy factory plant, still being built or on the drawing board, could result in spare "stainless steel" capacity, particularly if environmental standards result in fewer cows.
"So volume is going to drop, and there's going to be some lost capital."
He says there was a point when farmers may have got ahead of themselves when the milk price hit a record of $8.40/kg in 2013/14, but they were quickly brought back to earth when prices halved in the ensuing two seasons.
"Over the years we have been told that the market predictions were that there was going to be massive demand for dairy, which is true, and at a price to match it, which has not been true, and that returns would be very good, which has also not been true," Lewis says.
"It's sobering, but it's the reality."
Crop changes send dairy land rush into reverse
Dairy conversions have come to a standstill in most parts of the country, and some dairy farms have even reverted to their original use, or been put to new uses.
Horticulture — especially kiwifruit — continues its rapid rise, with some farmers opting to put at least part of their land into that crop.
Peter Newbold, general manager real estate at PGG Wrightson, says land use is changing, particularly in the North Island.
Newbold says there have been a few deals where newly converted dairy farms are reverting or going into something new.
"We have seen a few transactions where that's going to happen — mostly properties that were marginal to start with," he says.
Dairy, for many reasons, does not hold the allure it once did.
"If you take dairy at the moment, there is some pressure on value — there is no question about that," says Newbold.
"Where you have those marginal tier three dairy farms, if you are wanting to sell them, you are not going to get 2013 values in 2019, and so you are going to see some downward pressure there."
Dairy farmers are facing stiff headwinds: increased environmental compliance costs, Mycoplasma bovis, restrictions on overseas investment and tighter credit conditions.
"If you put all those together in one big bundle, it's a hell of a lot for one sector to cope with," he says.
"But dairy is still good. The payout is not too bad, so it's not all doom and gloom."
Meanwhile, sheep and beef farmers are thriving and kiwifruit is going from strength to strength.
Newbold says that in some districts, particularly the upper North Island, sheep and beef property values have risen by as much as 15 per cent in the past 12 months.
"Meanwhile, fringe dairy operations in some localities only require a moderate price adjustment, and de-commissioning of the dairy shed, to attract sheep and beef operators."
He says the gap between dairy and sheep and beef property values has narrowed. "While a gap remains, it is smaller than it has been in the past," he says.
It's a different story in the South Island.
In Canterbury — which ran hot with dairy conversions from 2006 to 2014 — conversions still happen, though at a far slower pace.
Ruth Hodges, national co-director of Colliers International rural and agribusiness, has had a lot to do with dairy conversions over the years, having previously worked for Synlait.
She says good, "status quo" dairy farms in Canterbury are still bought and sold as dairy farms, but some buyers are eyeing up the more marginal properties for other land uses.
"Different parties are looking at dairy farms for different uses, but there has not actually been a change in land use.
"There are still dairy conversions happening and they will continue to happen over the next five to 10 years in Canterbury.
"It is still often the best land use, particularly for those areas with irrigation schemes," she says.
At its peak, 80 to 100 new milking sheds a year were being built in Canterbury.
"It is definitely well back from those heady days but there will still remain the odd conversion," she says.
Data from Environment Canterbury shows conversions have been steadily declining since 2013.
In 2002, there were 542,610 dairy cows in Canterbury. By 2013, the number had passed 1.3 million.
Farms now looking to convert from another land use can only do so within the farm's existing nutrient leaching limit, which makes dairy conversions difficult.
In the Mackenzie Basin — in the public eye over the controversial Simon's Pass conversion in 2014/15 — there have been no new dairy conversions.
Further south, in the once predominantly sheep farming territory of Southland, conversions have all but petered out.
In 2014 there were 35 conversions. Since last year there have been seven land use consents granted for dairy farm expansions, but no consents for dairy conversions.
In the Horizons Regional Council, in the lower western North Island, there was just one conversion last year against a total of 62 for the preceding four years.
In the Waikato, the trend in land-use conversion slowed dramatically since the 2016 notification of Planning Change 1, which governs nitrate runoff into waterways.
In Northland, conversions have slowed and the number of dairy farms has shrunk by about 100 over the past five years, partly reflecting consolidation.
In the Far North, a handful of dairy farms have converted to avocado orchards.
In the Nelson region, with new irrigation, dairy land is going into hop and grape production.