Biological systems have natural limits:
- These limits include: energy, capacity and resource availability.
- Advocates for continual growth of agriculture in New Zealand.
- E.g. Andy West; double current milk solids(MS) production and $3 Billion more lamb
production.
-
THEO SPEIRINGS 30th of OCTOBER 2014 - “ He believes NZ dairying can continue to expand over the next
decade ,with 60 %of expansion based on conversions and more animals and 40% on more productivity .He
said the country had NOT reached the point of having too many cows. He disagreed with the
Environment Commissioner‘s comments that more dairying means a drop in water quality .
NZ dairying could easily grow for the next 10 years by 2-3% per year ”he said.
- However, this will require approximately 22 billion kilograms of extra dry matter fed +
create extra effluent and nutrient problems
- Will not provide additional revenue to cover the additional costs (MR<MC).
Biological systems have natural limits:
- How do we define limits?
- Physical limits can be distorted short term by such innovations as cow barns, robotic
milking, sophisticated feeding systems and improved biological efficiencies.
- Economic limits, however, are more difficult to distort. (Currently this distortion is
achieved through the use of averaging, selective data use and inadequate comparative
analysis.)
- The use of production economics establishes these economic limits.
Economic Limits – Resource use.
Dry Matter (kg/ha)
700
Diminishing Returns Curve
600
500
400
300
200
100
0
0
20
40
60
Nitrogen (kg/ha)
80
100
120
- Average response: same additional output for every additional
input.
- Diminishing returns: defines the point where the next additional
input results in a decreasing output.
- This is termed “Marginal Analysis” and identifies the point
where the marginal cost is greater than the marginal return
($MC>$MR).
- Most computer models rely on averaged figures and ratios.
- These models cannot accurately identify where to cease inputs.
- Without this ability, feed input costs ($MC) invariably exceed the
value of additional product from the feed ($MR).
- With the overuse of feeds comes higher nutrient loads and
increased environmental damage.
Base Farm (Run 1)
750 cows. 350 kg MS /cow
262,935 kg MS
Buy and Feed 648,500 kg DM; 865 kg DM /cow
Profit $740,235
N leach 18 kg N/ha/year
.
BASE FARM
750 cows
Buy & feed 648,500kg DM
(865kgDM/cow)
740,235
N
262,935kg MS
(350kg/cow)
N leach 18
kg/ha/year
MARGINAL ANALYSIS
618 cows
Buy & feed
23,000kgDM
(37kg/cow)
784,840
+
132 cows
-44,607
N
216,775
kg MS
15kg/ha/
year
Buy & feed
625,500kgDM
(4740kg/cow)
N
47,160
kg MS
(750 cows; 262,935 kgMS; $740,235; N leach 18)
3kg/ha/
year
From LP optimisation & production per cow at 380 MS/cow
557 cows
Buy & feed ???
877,365
18.5% increase vs base farm
N
N leach 13 kg/ha/year
213,970 kg MS
(380kg/cow)
28% reduction vs
base farm
“Roadtesting” the GSL Resource Allocation LP Model.
Example: Lincoln University Dairy Farm.
In “Top 5%” for NZ dairy farms.
http://www.siddc.org.nz/assets/LUDF-Focus-Days/11th-July-2013.pdf
LUDF 2010
667 cows
246,460kgMS
369 kgMS/cow
LUDF 2011/12
632 cows
297,720kgMS
471 kgMS/cow
LUDF 2012/13
630 cows
300,484kgMS
477 kgMS/cow
GSL used to set up LUDF
Reduce herd number
Young stock weights
Model performance
standards established
Monitor performance
Target reduced N use.
Decreased N leach
Management
implementation plan set.
Ensure 2 herds and
required intakes
Pasture quality and increased
grazing intake.
SMART NEW FARMS IN THE SWEET ZONE
WILL NEED MEANINGFUL, STRATEGIC BUSINESS
PLANS
• Optimised for PROFIT WHILE MEETING LIMITS
• Consistent measure for profit between land
uses.(ROC)
• Ethical(fair) resource use that is efficient. (e.g: LUC + kg
protein/megalitre water or profit/ML water)
• Resilient to volatility (price, weather, resource
clawbacks)
10
True profit + true environmental costs?
Investment
Average return on
capital (ROC%)
Top 10%
N loss
Term Deposit
4.5 (no work)
Dairy ($6.10 payout)
4.6
7-8
30-80
Sheep + Beef
4-5
7-8
10-20
Manuka
4.3 (no work)
9 (beekeeping)
3-4
11
HOW DO WE GET THERE…..
Legitimate + Meaningful
Business Plans showing limits
will be achieved over time.
Smart Resource Allocation to
Best Users + Innovators (Water
goes to most efficient use and expansion is only on soils
with greatest attenuation capability)
Not voluntary nor self
regulation (FEPs with no time bound targets).
True Economic Assessment
of Externalities + Clean Up
(Public will not keep paying $400,000 per tonne of N leaving root zone (20 years
– Lake Taupo)
12
Tomorrows Farms Today
25 farms Upper Waikato – 3 years.
Naked Business Discussion Group – “Bare All”
What Farms were most resilient? (consistently good ROC)
30% change in milk price
Dry years
Notional nitrogen limit (40% below average)
13
TOMORROWS FARMS TODAY
MORE MILK
MORE STOCK
MORE N use,
MORE pasture harvested
DID NOT correlate
with higher profits in 2010-12.
farmers don’t know what they don’t
know”
Kirsten Watson – vet + sharemilker & TFT participant.
“
14
Some Top Performers in the Study
SOME FARMS PRODUCE A LOT MORE
MILK + MONEY WITH A LOT LESS
POLLUTION
16
DOUBLE THE PROFIT WITH HALF THE POLLUTION
Mc Knight & Robinson: 8-9% ROC + 20 -22kg/N Leached
Central Plateau Average: 4.5% ROC + 39kg/N Leached
(2012)
AND DOUBLE THE PRODUCTION WITH
HALF THE POLLUTION
Kg Milksolids per kg N lost……
McKnight +
Robinsons
TFT Group 2013 - Production N Loss Efficiency
90
KgMS/ha Per KgN Leached/ha
80
70
60
50
40
30
20
10
J
V
B
K
C
P
U
I
G
D
W
Q
M
T
A
R
N
L
F
O
H
X
S
E
Tomrrows farms Today Group
18
THE STORY OF LAKE FARM
A TALE OF “TWO HERDS”
• 530 cows – baseline 2009.
Marginal profit and high risk.
• Drop to 430 and ROC improves and
(economic)risk drops
• N loss reduced by 30%
• Review system after 4 years (2014)
• Drop further 100 cows to 350
cows,
Risk drops, ROC improves and
environmental footprint is 50% below
baseline.
• What is this telling us?
A TALE OF TWO HERDS
(40% drop in SR improves business
resilience, and halves the footprint)
19
A Smooth Journey to our end point
If we want more – from less
• Encourage business literacy + resilience + development
with fewer externalities
• Facilitate the most resource efficient use
• NOT BY REWARDING POLLUTERS + POOR RESOURCE
USE
• COUNT THE COST OF EXTERNALITIES & PUBLIC
BURDEN OF CLEANUP
• Educate businesses to think……
PROFIT, PLANET & PEOPLE
NOT - Productionist + Resource Hungry
DUMB & DIRTY GROWTH
20
INTENSIFYING THE Upper Selwyn Catchment where L & XL soils have high rates of nutrient
loss relative to productivity (M-H soils most resource efficient)
200
180
Increasing Rates of Resource Use Efficiency
160
kg MS per kg N leached
140
120
Least Efficient Soils
100
80
60
40
20
0
L-XL
L-XL
L-M
L-XL
L-XL
Soil Type (XL = Light, H =Heavy)
H
H
H
21
The Treadmill of Marginal Returns
More Growth – Less Productive
22
MORE IS NOT ALWAYS
BETTER
MARGINAL GROWTH and PRODUCTION =
↑RISK
HIGH SOCIAL COST WITH LOW SOCIAL BENEFIT
23
The Sweet Zone
Business Indicators
Sweet Zone
Production
Profit (ROC)
Risk
Cow Liveweight per Hectare
24
The Sweet Zone
Physical Indicators
Environmental Effects
Sweet Zone
Cost to Fix Effects
Production
Profit (ROC)
25
Marginal Cost of reducing Nitrogen leaching.
$800,000.00
$700,000.00
$600,000.00
$500,000.00
$400,000.00
$300,000.00
$200,000.00
$100,000.00
$0.00
20
15
10
5
0
N Leach KG/Ha
The System 3 dairy farm produces at an N leach of 18 and profit of about $600,000.
Becoming more efficient in terms of economic resource allocation will also improve profit for such System 3 farmers and reduce their N leach to that of a more
optimal farmer at about 14.But from there on, the diminishing returns curve dips down at an increasing rate, meaning that any reduction in N leach for the efficient
farmers will immediately reduce profits. “Grand parenting” therefore results in the most efficient farmers (e.g. LUDF) immediately losing profit whereas the least
efficient farmers may reduce N leach by up to 50% and be no worse off. This policy unfairly targets efficient farmers but inadvertently benefits inefficient farmers.
(“Inefficient” refers here to integrated economics and N leach. The higher input farms may however claim to be more biologically efficient if the high inputs result in
higher production per cow.)
SUMMARY:
AVERAGING DESTROYS DETAIL.
- DETAIL IS REQUIRED FOR MARGINAL ANALYSIS.
- MARGINAL ANALYSIS ESTABLISHES EFFICIENT RESOURCE USE.
- EFFICIENT RESOURCE USE IMPROVES PROFITS, LOWERS RISK AND
MINIMISES ENVIRONMENTAL DAMAGE.
- THE DAIRY INDUSTRY USES AVERAGES AND WILL NOT ACKNOWLEDGE A
PROFIT/LEACH “WIN / WIN”.
- POLICY MAKERS FOLLOW THIS LEAD AND ESTABLISH RULES LIKELY TO
RESULT IN “LOSE / LOSE”.
- THIS BELIES THE FACT THAT FARMERS ARE ACHIEVING “WIN/WIN”.
- APPLICATION OF PRODUCTION ECONOMICS SHOULD BE ENCOURAGED AT
ALL LEVELS OF THE AGRIBUSINESS INDUSTRY TO ENSURE THIS “WIN/WIN”.