Sheep and beef lack cohesion

12-07-2010 | Alan Emerson

High profile sheep and beef farmers including Federated Farmers president Don Nicholson and Meat Industry Action Group leaders are crossing over to dairying. Hugh Stringleman asks: What are their reasons and can anything stem the tide of dairy conversion?

Co-operative spirit and good returns versus fragmentation and poor profitability: That's the attraction of dairying compared with sheep and beef.

For many farmers the 90% Fonterra vote participation contrasted very favourably with yet another recently failed attempt to bring all wool growers into one camp - as it did with the frustrations of merger proposals for Silver Fern Farms with Alliance Group and another weak turn-out for an industry-good vote.

The sheep and beef sector has the right market strategies but lacks capital and the industry co-operation to execute them, according to Sarah von Dadelszen of Waipukurau.

Sarah and husband Sam diversified into dairying in 2006 and it now represents about 40% of their farming businesses.

Sheep farmers outside Hawke's Bay might have been surprised to see a photograph of von Dadelszen on the front page of The New Zealand Farmers Weekly (July 5) gathering up votes at the Fonterra special meeting in Palmerston North on June 30.

From her perspective as a Fonterra shareholders councillor and former national chair of the Sheep Council von Dadelszen said the Trading Among Farmers vote participation and outcome showed the Fonterra model was providing exactly what dairy farmers need.

"We must have a strong co-operative in the meat industry and I would love to see Silver Fern Farms as that strong entity.

"I think its market strategy is outstanding," she said.

"The last-one-standing approach from Alliance is not going to work when every year another 50 sheep farms in Southland are converted to dairying."

Von Dadelszen foresees Silver Fern's need to repay its bonds in December as an opportunity to bring in new equity and strengthen the debt-to-equity ratio.

Perhaps the NZ Superannuation Fund could make a primary industry investment and catalyse the amalgamation of three meat companies - Silver Fern, Alliance and ANZCO.

The wool sector also has good strategies from both Wool Partners International and Elders Primary Wool.

"It's a crying shame they are not doing it together," von Dadelszen said.

"You can hide behind lack of finance but fundamentally the sheep and beef sector lacks purpose.

"We have got to get more young people involved in the meat industry, otherwise we are in for great trouble in the future," she said.

Federated Farmers national president Don Nicolson and wife Gail are moving to drystock grazing and selling down the sheep flock which peaked at 5000 stock units.

"I started selling out of sheep eight years ago when I lost some lease blocks and I got rid of my deer then too because they returned a good price.

"The markets tell farmers what to farm although they can't transition overnight.

"I am not anti-sheep farming but for me the message is clear - sheep farmers must have more profit."

Nicholson said his best year was 2001-02 when high commodity prices and low currency values coincided - a rare event.

He then reeled off the net profit per lamb figures for the past eight years, some as low as $2 to $5/head.

"It's not the international returns - they are good. Costs are eating the heart out of farming.

"My generation has paid for two meltdowns in the meat industry and here in 2010 still more capacity needs to go.

"We are residue receivers, not price setters," Nicholson said.

"Oh, and look, after 30 years I am sick to death of dagging my own lambs."

Meat Industry Action Group (MIAG) chairman John Gregan and his wife Cara are going wholly from sheep and beef farming to dairying, on two farms near Timaru.

"It's a business decision but I am frustrated at the lack of progress in the meat industry," Gregan said.

Ten years ago the gap between dairying and sheep and beef wasn't as wide but now "the gulf has got a lot bigger".

"The Fonterra farmer-owned co-operative obviously suits me - as I have been banging on about for the meat industry."

The Gregans peaked at 7500 ewes on a home farm and two lease blocks. When they lost one lease and had the option two years back to buy the land on the other, the only way the debt servicing was viable was conversion to dairying.

Now the home farm is going to dairying too, with the aim of two herds of 400 cows each.

"Although I was apprehensive I have quite enjoyed dairying which has been a refreshing change after 20 years - there's heaps more to learn," he said.

MIAG stalwart and Silver Fern director Herstall Ulrich and his wife Alyson are crunching the numbers on dairy conversion for 85ha, though "no decision has been made yet".

They will retain sheep and beef on 420ha effective, so the temptation of dairying on the smaller farm is about "maximising profit from grass grown with irrigation and water storage".

The analytical Ulrich added that dairy cows are the most efficient livestock class at converting dry matter into saleable product.

Even in recent seasons with some of the best lamb market prices ever, farmers haven't benefited because the cost of production has gone through the roof, he said.

His beef returns have at best been static during the past 15 years of Technosystem bulls on irrigated land.

"Among sheep and beef farmers there is a lot of will for something structural to happen.

"They clamour for co-operation and then by their actions behind the farm gate they want competition between meat companies," Ulrich said.

The results of the Silver Fern bonus issue in late 2009 would indicate "no huge appetite" from sheep and beef farmers for capital raising, though the new hybrid co-operative model had more potential in that regard than an older style pure co-operative.

"Really, the shape of the meat industry is in farmers' hands - by their decisions on who they will supply," Ulrich concluded.

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