Dairy Farm Conversion
Fonterra's milk-payout announcements have fuelled an unprecedented demand for farms for conversion, in particular, and equity partnerships are becoming more common. Dairy Trust ( Talleys ) is setting up a new processing plant in the area.
The South Island is now home to 1.5 million dairy cattle, which is more than 600% higher than the 225,000 head in 1981. Areas of the Southland once exclusively the domain of sheep farms are now dotted with cow sheds.
New Zealand's 700th dairy conversion since 1995 took place in Southland recently , and theres now close to 650 dairy farms compared to 285 in 1997. Up to 100 sheep and beef farms are lining up to convert in the coming year.
Growth and demand are so rapid that the picture is changing in a matter of months, not years. In the three months to July there were 120 Southland farms sold, more than double for the same period last year, when 58 were sold, almost 18 per cent of farm sales in the country.
The value of farms sold in the area has also ballooned, from $965,000 in the three months to July 2006 to $1.63m in the same period this year.
Richard Peirce
Dick is from Millers Flat. He started out on his parents orchard and started working on farms aged 17. Now in his mid 40s he owns a 730ha property midway between Gore and Waikaka with a further 200 acres of lease land.
By his own admission hes not your traditional status quo sheep farmer. His attitude is to borrow big, work hard, make good decisions and have a bucket load of determination. It is the same approach hes taking to dairy farm conversion which is looking like an outlay of around $10m.
Interestingly the property is also currently on the market while it is in the process of converting which at very least tells you that Dick isnt sentimental about the business of farming.
All up Dick farms 930 acres of flat to rolling southland country. At its peak hes run 3,500 ewes, 1100 hogget and 70-150 cattle for fattening. Hes got grazing for dairy cows and has also grazed dairy heifers. They are in the middle of lambing but hes already shed some ewes in advance of quitting all of them.
They will be replaced by 600 750 cows for the next season.
Dick says they made up their mind to go ahead in May 2007. As yet there has been no major work on the property largely because it has been too wet. He has however pulled out several huge trees on the site of the dairy pulled some fences and started mapping out culverts, raceways etc. He says at the first sign of dry weather the contractors will be on the place.
Hes found that he has had to pull out of day to day farming to get more involved in the planning for the conversion. He says hes not used to spending so much time on the cell phone.
Alastair Gibson
Alastair is the independent consultant brought in by Dick to help with the conversion. Alastair says theres some basic steps that need to be taken before going ahead.
First thing to look at the farmer are they ready for the challenges are they someone who is going to be able to make big decisions quickly. Do they have the mindset to tackle the challenges ?
Secondly they have to look at the property are they going to able to milk cows here and what are the issue if any regarding the block.
After that there are a range of practical issues to go through.
The biggest issue at the moment is the rising cost of dairy cows. Not that long ago they were selling for $1800 since the increase in projected payout they are now talking $2000 - $2500. Dick says people are holding on to cows until they feel the market has peaked.
Alastair says theyve done budgets on the basis of cost of cows,
Likely returns ( on Fonterra project payout ),how much each cow will produce.
(they are aiming high at 400 -410 kg/ms) and how much they are likely to get for the stock they are selling.
This is an ongoing issue in the industry. The province is expecting to need 18,000 extra skilled workers in the next nine years - thanks to the dairy industry, an oil and gas hunt in the sea south of Invercargill and the construction of a liquid-fuels plant.
There are a range of solutions including using an equity partner for the labour or arriving at some deal for cows and labour.
Paul Richards, from Fonterra, says the company usually makes an initial visit following contact from an interested party. He says they usually go through what basic steps need to be taken talk through share / contract milk supply issues.
They also look at the site of the proposed dairy shed, and talk through basics like DDT levels in soil, milk machine, tanker access, and refer farmers to local council regarding consents etc. Paul adds that Fonterra have their own programme running regarding the environmental issues they are signatories to the Clean Streams but have also put in place EIS (effluent indicator system) which outlines a range of penalties for farmers who dont comply.
Fonterra rep to discuss issues for new conversion farmers including cost of shares and other short term solutions such as contracting milk at a slightly lower payout.
There are a number of issues to do with drainage, laneways, pasture renewal, soil fertility. Dick Peirce is at an advantage P levels are sitting at around 30.
Theres also the potential minefield of resource consents from Regional Council etc
One big issue is that there was no legal requirement to put in effluent-storage ponds and some farmers were therefore struggling to meet the conditions of their resource consents.
Environment Southland compliance manager Mark Hunter says the majority of land owners and dairy farmers are responsible, never falling foul of the regulatory process, but there was a small percentage who transgressed "reasonably regularly".
One farm was last year fined $60,000 after being found guilty on three charges of contaminating waterways. (The fine was reduced to $40,000 on appeal and the farm has since changed hands.)
The South Island is now home to 1.5 million dairy cattle, which is more than 600% higher than the 225,000 head in 1981. Areas of the Southland once exclusively the domain of sheep farms are now dotted with cow sheds.
New Zealand's 700th dairy conversion since 1995 took place in Southland recently , and theres now close to 650 dairy farms compared to 285 in 1997. Up to 100 sheep and beef farms are lining up to convert in the coming year.
Growth and demand are so rapid that the picture is changing in a matter of months, not years. In the three months to July there were 120 Southland farms sold, more than double for the same period last year, when 58 were sold, almost 18 per cent of farm sales in the country.
The value of farms sold in the area has also ballooned, from $965,000 in the three months to July 2006 to $1.63m in the same period this year.
Richard Peirce
Dick is from Millers Flat. He started out on his parents orchard and started working on farms aged 17. Now in his mid 40s he owns a 730ha property midway between Gore and Waikaka with a further 200 acres of lease land.
By his own admission hes not your traditional status quo sheep farmer. His attitude is to borrow big, work hard, make good decisions and have a bucket load of determination. It is the same approach hes taking to dairy farm conversion which is looking like an outlay of around $10m.
Interestingly the property is also currently on the market while it is in the process of converting which at very least tells you that Dick isnt sentimental about the business of farming.
All up Dick farms 930 acres of flat to rolling southland country. At its peak hes run 3,500 ewes, 1100 hogget and 70-150 cattle for fattening. Hes got grazing for dairy cows and has also grazed dairy heifers. They are in the middle of lambing but hes already shed some ewes in advance of quitting all of them.
They will be replaced by 600 750 cows for the next season.
Dick says they made up their mind to go ahead in May 2007. As yet there has been no major work on the property largely because it has been too wet. He has however pulled out several huge trees on the site of the dairy pulled some fences and started mapping out culverts, raceways etc. He says at the first sign of dry weather the contractors will be on the place.
Hes found that he has had to pull out of day to day farming to get more involved in the planning for the conversion. He says hes not used to spending so much time on the cell phone.
Alastair Gibson
Alastair is the independent consultant brought in by Dick to help with the conversion. Alastair says theres some basic steps that need to be taken before going ahead.
First thing to look at the farmer are they ready for the challenges are they someone who is going to be able to make big decisions quickly. Do they have the mindset to tackle the challenges ?
Secondly they have to look at the property are they going to able to milk cows here and what are the issue if any regarding the block.
After that there are a range of practical issues to go through.
The biggest issue at the moment is the rising cost of dairy cows. Not that long ago they were selling for $1800 since the increase in projected payout they are now talking $2000 - $2500. Dick says people are holding on to cows until they feel the market has peaked.
Alastair says theyve done budgets on the basis of cost of cows,
Likely returns ( on Fonterra project payout ),how much each cow will produce.
(they are aiming high at 400 -410 kg/ms) and how much they are likely to get for the stock they are selling.
This is an ongoing issue in the industry. The province is expecting to need 18,000 extra skilled workers in the next nine years - thanks to the dairy industry, an oil and gas hunt in the sea south of Invercargill and the construction of a liquid-fuels plant.
There are a range of solutions including using an equity partner for the labour or arriving at some deal for cows and labour.
Paul Richards, from Fonterra, says the company usually makes an initial visit following contact from an interested party. He says they usually go through what basic steps need to be taken talk through share / contract milk supply issues.
They also look at the site of the proposed dairy shed, and talk through basics like DDT levels in soil, milk machine, tanker access, and refer farmers to local council regarding consents etc. Paul adds that Fonterra have their own programme running regarding the environmental issues they are signatories to the Clean Streams but have also put in place EIS (effluent indicator system) which outlines a range of penalties for farmers who dont comply.
Fonterra rep to discuss issues for new conversion farmers including cost of shares and other short term solutions such as contracting milk at a slightly lower payout.
There are a number of issues to do with drainage, laneways, pasture renewal, soil fertility. Dick Peirce is at an advantage P levels are sitting at around 30.
Theres also the potential minefield of resource consents from Regional Council etc
One big issue is that there was no legal requirement to put in effluent-storage ponds and some farmers were therefore struggling to meet the conditions of their resource consents.
Environment Southland compliance manager Mark Hunter says the majority of land owners and dairy farmers are responsible, never falling foul of the regulatory process, but there was a small percentage who transgressed "reasonably regularly".
One farm was last year fined $60,000 after being found guilty on three charges of contaminating waterways. (The fine was reduced to $40,000 on appeal and the farm has since changed hands.)