Catchment management strategies.

Executive Summary

Irrigation and water storage

Factors outside a farm boundary, play a large role in the farming system.  Irrigation water comes from the runoff from a whole catchment area.  Water also leaves the farm and can have effects on the quality of waterways if nutrient and or sediment goes with it.

Water storage for future irrigation in New Zealand is being increasingly investigated where ground and surface water is under allocation pressure.  This report gives examples of the irrigation schemes visited and the companies that manage the water use.

Irrigation schemes in Australia have considerable infrastructure. Investments to improve efficiency and add new technology have future benefits for irrigation consumers as well as for the environment within the catchment.  Having a value on water, and the ability to trade the right to use this resource makes the economics of upgrading and modernising the infrastructure easier to finance.

All the irrigation schemes and farms visited used volume-based measures for water management.  Although getting used to the terminology took some mathematical thinking, it soon became clear that volume-based measures make sense.  It encourages Water Use Efficiency (WUE).  Farmers have capital invested in Water Entitlements and fixed and variable costs are based on the volume of entitlements held and used.

Water allocated for irrigation in New Zealand is often measured on a flow rate basis and application described in depth.  These measures make comparing actual volumes used difficult and therefore do not effectively encourage WUE.  New Zealand has a national policy requiring future metering of the majority of water consents. This will be a good opportunity to look at volume based measures for managing water resources.

Water trading in Australia is based around the rights relating to how water is used rather than the purchasing or selling of the water itself.  It is a fundamental difference to the management of the resource compared to New Zealand’s consent-to-use approach under the 1991 Resource Management Act.  It enables the value associated with its use to be invested in the resource that created that value.  Effectively it is decoupled from the resource of land.  Many irrigated farms have more invested in water assets than they have invested in land.  This makes sense as it is the water that allows them to run their farming systems.

Conversely, New Zealand does not have an active water market or property rights attached to the use of this resource.  Value created by water use in New Zealand is capitalised in land values where farm production is enhanced by water use, and that production is used to value the land.  This could over capitalise land values out of reach for systems that have lower water requirements because the additional water cannot be traded.  If water use is tradable it encourages investment in the resource that created the value.

Max Fehring, an Australian farmer who is an authority on the subject says,

“The two most important aspects of irrigation are yield and security.  Yield provides potential, and security allows potential to be achieved”.  

There are many overseas people with knowledge of water issues.  New Zealand should draw on this when developing future policy direction for this key resource.   

Catchment Management

Catchment management, especially policy and regulation around nutrient use, is part of farming in the European Union (EU). The EU has put pressure on member states to improve the quality of their water resources.  Failing to deliver improvements could lead to fines and tougher regulation in the future.

The EU Nitrates Directive, part of the larger EU Water Framework Directive, focuses on the management of nutrient loading to protect water, both surface and ground, against pollution from agricultural sources. Increasing the amount of nutrients entering a water body can lead to eutrophication which affects the balance of organisms and water quality.

Biodiversity, water and air quality and farm profitability are all benefits from using nutrients more efficiently.  Stakeholders involved in any catchment management plan must take a wider view than their individual situations if desired outcomes are to be achieved at the catchment level.

Benefits of research on nutrient use

Northern Ireland has taken a layered approach to look at nutrient use in agriculture.  A national summary of nutrient use highlights where surpluses may lead to environmental impacts.  Breaking it down into industry usage further identifies target areas.  Research funding can then be applied to investigating possible outcomes that will improve nutrient use on-farm that are both economic and practical.

Farm system research in Northern Ireland has not only demonstrated that nutrient efficiencies are achievable, their research has been implemented at the farm level and has lead to measurable results.

Cattle wintering systems are becoming more intensive in New Zealand.  Some farmers are even deciding to house their cattle over wetter periods.  With these changes happening, it would be beneficial for New Zealand to research the impacts of different wintering systems.  Included in this research should be the effects on soil structure, nutrient cycling of N and P as well as soil loss from erosion. Housing cattle adds cost and infrastructure both to house the livestock and to store the effluent produced.

Policy – The collaborative approach

All examples of successfully implemented catchment plans studied during this scholarship were based on delivering on national standards set by Governments.  From this, state authorities set catchment policy and implement plans with collaboration from stakeholder input.  Policies and plans are different as they relate to specific issues in a given catchment.  Having measurable targets, plans that are workable with inclusive strategy and good working relationships between all stakeholders is important for successful implementation.  Extension services that were well resourced with staff working directly with land and water managers displayed positive relationships.  It was encouraging to be directed to policy officers by farmers who have direct contact with the people employed to manage natural resources at the catchment level.  They were open with their opinions and respected each other’s roles.

The New Zealand Land and Water Forum is an example of the collaborative approach to getting consensus on future governance around land and water resources.  This approach needs to be adopted at lower levels once national policies are established.  Adequately resourcing people to work with farmers and other stakeholders in implementing catchment plans will be required.  Good working relationships are the key to successful outcomes being achieved to benefit all parties.  The Natural Resources Conservation Service (NRCS)  of Texas sums this up with their simple but powerful vision – “Helping People Help the Land”.

Catchment Management Strategies – Paul McGill

How do dairy co-operatives grow for farmers’ benefit.

Executive Summary

This Nuffield Report seeks to answer the question “How do Dairy Cooperatives Grow for Farmers’ benefit?”  It is set in the context of New Zealand’s need to increase its earning capability to match Australia.  As New Zealand’s largest company, and second largest industry, Fonterra’s future plays an important role in our economy.  The question is explored from an ownership and governance perspective.  This report is a record of the findings of this study.

The study spanned 15 months of preparation, travel, research and reflection, including six months overseas studying dairy co-operatives and companies around the world.  Dairy businesses researched include Kerry Group Plc, DairyGold Co-operative Society, The Irish Dairy Board Co-operative, Dairy Farmers of Britain, Royal FrieslandCampina, Dairy Farmers of America and Land o’ Lakes, amongst others.  The study is exploratory and the findings should be read in that context.

A co-operative is essentially a large equity partnership.  It is between individuals with businesses in the same sector of the value chain, who wish to invest for mutual advantage up or down the chain.  The collective investment is legally viewed as an extension of an individual’s core business.  Socialism is not a defining characteristic of co-operatives.

The Report discusses that co-operatives are purely a form of business often used where there is inherent market inefficiency.  Dairy is an inherently inefficient market.  The perishable nature of milk means that farmers have severely reduced power to negotiate a price reflective of the level of risk taken compared with downstream players.  Collective ownership corrects the market inefficiency, apportioning more of the consumer dollar to the farmer.

The Report suggests that removing collective farmer ownership of dairy processing assets impedes a co-operative’s ability to correct market inefficiency.  This could consequently reduce income to the farmer and to the processor.  If the experience of the United Kingdom dairy industry was replicated in New Zealand, such a path could potentially reduce the annual net cash income to New Zealand by as much as two billion dollars.  Given that the dairy industry has a velocity of money per annum of six to seven, such a scenario would have serious implications for the national economy.

Four broad themes emerged as a result of the study:

Theme 1:                     Ownership Provides Purpose

For a co-operative to grow for the farmer, the farmer must own the cooperative.  Business serves capital.  The purposes of public investors and farmer investors are conflicted and will result in lowered returns for farmers.

Theme 2:                     Purpose Drives Strategy  

For a co-operative to grow it must understand its purpose.  Purpose is the destination.  Strategy is a pathway.  Structure is just a vehicle. The core purpose of a dairy co-operative is to maximise the price of milk.  Farmers should ask their leaders how the strategy maximises their Milk Price.

Sometimes co-operatives are faced with opportunities to grow outside of their core value chain, and access to public investment would be highly beneficial. In these situations the core processing assets should be ring fenced.   It is suggested that these new high growth opportunities outside of the core processing assets for New Zealand milk could be structured to incorporate public investment away from the core.  This could include spinning off the high growth opportunity.

Theme 3:                     People Create Results  

For a co-operative to grow, farmers must invest in and develop their future governors.  A large pool of future governors should be identified in their 20s, nurtured and developed to provide the future leaders.  It is critical that high quality farmer governors are developed as farmers must dominate the Board by at least 70 percent.

Politics must be rejected in dairy co-operatives, and a meritocracy grown.  Farmers should maintain their understanding of the co-operative, and must exercise their vote.  Executives must understand the purpose of the cooperative, and must be incentivised towards that goal.

Theme 4:                     Feed Your Golden Goose

For a co-operative to grow for the farmer, the farmer must own and invest in the business.  Investment may be made via purchasing new shares, retentions, and deferring milk payments.  In conjunction with this, farmers must involve themselves and continue to question the performance of the business.

The report is supported by an appendix detailing research on a selection of dairy companies and industries.  The report also includes exploratory research comparing the wealth creation of Kerry Group farmers and DairyGold Cooperative Society farmers over the past 20 years.  The findings are indicative only, and suggest little difference between the wealth amassed by the two groups of farmers.

How do Dairy Co-operatives Grow for Farmers’ Benefit? – Desiree Reid

A review of the current New Zealand situation and recommendations for the future.

Executive summary

New Zealand Agriculture Education and Training (AE&T) has helped build a country that has been extremely successful – largely based on export of its primary industries, innovation and services to agriculture. Over time a multitude of providers and a plethora of qualifications have developed to meet the demand. There have always been challenges for education and training in agriculture, but it seems that more than ever we are being constrained by funding and other issues such as globalization and urban opinion regarding our primary sectors. This is an ideal time to review and re-design the way AE&T is provided in New Zealand.

While it is encouraging that the overall number of people studying agriculture has increased, the trends are in the opposing direction to which our funders request. Specifically, students in agriculture tend to require skills and knowledge at levels 2-4 and to study part time. The Tertiary Education Commission’s aim is to increase the completion of higher level qualifications and provide more full-time courses rather than funding for short qualifications.

Increasing globalization offers both challenges and opportunities – the growth of developing nations such as India and South America mean that NZ agriculture could easily be squeezed from larger, faster growing countries and our skills and knowledge used by our competitors to enhance their production and export potential. At the same time, there are opportunities for NZ providers to grow internationally and expand our student funding base.

During my research I saw a range of other countries AE&T models, the majority have obvious focus on amalgamations, mergers and joint ventures. When compared to the AE&T models used overseas by other advanced agriculture nations including our main competitors on the export market, NZ appears to be at least a decade behind. The majority of the agriculture organizations I visited, in countries such as the United Kingdom, Ireland, North America and Australia have amalgamated horizontally, vertically or full integrated across the whole sector. The advantages being sharing governance, marketing and admin services and utilizing training farms and trainers across a wider range of courses. In some cases such as the Irish system AE&T has been fully collaborated with Research and Extension. If these models are common place and successful overseas then this begs the question as to why NZ is still serviced by a range of institutions and organizations, delivering locally designed and developed qualifications and courses while competing against, instead of complimenting, others in the sector?

Scale, efficiency and effectiveness have been created, whereas in New Zealand we bombard funders, politicians, students and other stakeholders with a range of different brands, courses and outcomes. Most providers in New Zealand are specialists in AE&T therefore they need to have some protection to ensure there is a committed and viable AE&T sector to service what is still the backbone of this country. If New Zealand is going to maintain an effective and economic education and training industry then we need to develop a collective vision and generate a larger, stronger, unified organization that will be able to take on the challenges and respond to the opportunities.

This must be led from the top down, funders, governance and stakeholders need to place pressure on organizations to simplify organizational structures, simplify and rationalize courses and qualification and amalgamate providers. It is likely that bulk funding of agriculture will be required to ensure the conviction of change, to allow a collaborative team to distribute funding for agriculture across providers and ensure a minimum level of collaboration is achieve, and promote unification of qualifications and providers. While some work will be required from the ground up, especially in regard to reducing the number and range of qualifications and courses, ultimately it will be the vision and leadership that will drive change and ensure that New Zealand AE&T is structured and positioned in a way to achieve our goals of being an effective and efficient industry for our nation and potentially a significant global provider for Agricultural Education and Training.

A review of the current New Zealand situation and recommendations for the future – Ian Knowles