United States Mega Dairies
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DairyNZ collaborated with Perrin Ag to evaluate the competitiveness of NZ and US mega-dairies up to 2040. They used five potential future scenarios to assess their impact. The key areas of focus for a Frontier Farm system include the environment, labour, production costs, animal welfare, and transparency. After considering each scenario, labour, cost of production, and transparency stood out as primary concerns. The NZ dairy sector has opportunities like local market channels and a carbon footprint advantage. However, risks involve higher production costs than the US and potential reduction in export volumes. The next step involves creating a novel frontier farm system to test on a real farm.
The first competitor assessment in the Frontier Farms project was carried out on US mega-dairies (farms of more than 2,500 cows, typical of mid-western states).
US mega-dairy farms were identified as a competitor as they can achieve a high operating profit, with the ability to scale up (see US-2600ID in graph 1 below).
What we did
DairyNZ worked with Perrin Ag to analyse the relative competitiveness of NZ and US mega-dairies as they might be in the future (to 2040). 2040 was chosen as the horizon as a proxy for where the best (frontier) farms might be in 2030. Because the future is uncertain, this comparison was made under a range of possible future scenarios.
Future scenarios
Five possible future scenarios were identified based on current trends. Each scenario was assigned a relative contribution (out of 100%) it could have to our actual future.
| Future scenario | Expected contribution to actual future |
| Business as we expect it to be (BEB) Neutral extrapolation of existing trends - our most 'likely' future. |
35% |
| Consumer is king (CK) Consumers are highly attuned to product attributes - a future we think we might end up needing to embrace. |
30% |
| Chaos and populism (CP) A world that is increasingly chaotic and insular - a future most of us thought unlikely 3 years ago. |
10% |
| Regulation rules (RR) Increased community, government, society, and consumer-imposed standards and expectations - the future many worry about farming in. |
20% |
| New agricultural revolution (NAR) Productivity of agriculture has achieved a significant leap - a future many dream about. |
5% |
Focus areas and results
Five key focus areas were identified that a Frontier Farm system might need to deliver on:
Environment
Lower greenhouse gas emissions, continued low use of extracted water for production, improved water quality (driven by lowered N surplus). This focus was relevant under all of the scenarios considered given its importance to meeting consumer expectations, complying with and reducing the cost of regulation and/or lifting productivity. Key farm system metrics will include both intensity (i.e. kg CO2e/kg FPCM, L H2O/ kg FPCM) and gross (t CO2e/ha/year, kg N surplus/ha) measures.
Labour
This aligns with the concept of farming smarter not harder and the sensible adoption of automation across the farm system in order to help de-risk the industry with regard to the availability of skilled labour and its expected ongoing rising cost. Ultimately the goal here would be to make the existing lack of labour (and an expected ongoing decline in availability) sustainable for the current size of the sector, rather than to enable its expansion. Key farm system metrics will include those currently in use (kg MS/FTE, cows/FTE) but also those focussed on the quality and sustainability of labour (i.e. average hours worked per fortnight, proportion of time spent milking, number of people per FTE).
Production costs
The cost of producing milk. NZ is expected to be negatively impacted in most of the scenarios explored – either through higher component costs (like labour and feed), higher fixed costs (via compliance and regulation) and/or the inability to dilute costs through ongoing intensification. In fact, the potential for deintensification and a reduction in the NZ milk pool is a key issue under many of the possible futures considered. Farm working expenses per kg MS remains a key metric. The latest DairyBase economic survey reported the top quartile of owner operators by profit had FWE/kg MS of $4.03/kg MS compared to the average of $4.41/kg MS. In the current environment, keeping FWE to no more than $4/kg MS would be an admirable goal.
Animal welfare
Both the NZ and US mega-dairy industries have their own animal welfare issues to contend with, many specific to their underlying husbandry parameters (pastoral versus housed). In NZ, addressing specific 'blind spots' will likely become increasingly important. In particular, this includes the lack of shade for cattle in hot weather, the high proportion of surplus calves that do not enter the beef supply chain proper (less than 40%), winter grazing practices (already in train), and potentially the extremes of body condition variation observed in primarily pasture-fed cows.
Transparency
While not specifically a feature of the farm system per se, the use of biosensors, digital monitoring, and the wide adoption of APIs will be critical under all of the scenarios considered to provide enhanced transparency and information for our NZ farm systems. This former will be critical to support provenance claims and compliance with regulation, while the latter will assist with the greater achievement of proactive as opposed to reactive management decisions and the required profitable increases in per cow productivity.
Key outcome
When weighted by the likelihood of the scenario and the importance of the area to the scenario, labour, cost of production and transparency emerged as closely interrelated and consequently were chosen as the areas to focus on when co-designing the first frontier farm system.
Animal welfare is likely to be a key component of the next Frontier Farm analysis, competition from alternative 'milk'.
Improving environmental sustainability is already the focus of several large programmes of work at DairyNZ i.e. Low-Nitrogen, Plantain and Less Methane projects, and new solutions are likely to be able to be integrated into a frontier farm system.
Figure 1.
When each of the possible futures was considered for the NZ dairy industry relative to its US mega dairy competitor, there were also some broader themes for the sector that appeared to be consistent across the range of the futures we considered, summarised below:
Opportunities
- We are better placed than US mega-dairy farms to tap into local market channels.
- Our carbon footprint advantage is unlikely to be eroded with the use of methane inhibitors.
- Genetic technology could significantly improve the ability to address the environmental footprint challenges faced by the NZ dairy industry, but only if our consumers and communities consider this acceptable.
Risks
- Our competitiveness slowly eroded relative to the US, mainly in relation to cost, availability and replaceability of labour.
- Compared to the US, our export volumes stand to shrink by almost twice as much if regulation or consumers require extreme reductions in environmental footpint - reducing NZ's dominance of the export milk market.
- NZ cost of production is expected to increase at a greater rate than the US.
- The NZ industry is more exposed to disruption from supply chain pressures, access to capital and domestic expectations.
Next steps
Co-design of a novel frontier farm system with farmers and industry experts that can be tested in an on-farm demonstration, with performance, learnings and outcomes shared with our farming community.
More information
For more information about the Frontier Farms project contact Dr Paul Edwards, Paul.Edwards@dairynz.co.nz
Related work: Shadbolt, N., Apparao, D., Hunter, S., Bicknell, K., Dooley, A. 2017. Scenario analysis to determine possible, plausible futures for the New Zealand dairy industry. New Zealand Journal of Agricultural Research, 60:3, 349-361, DOI: https://www.tandfonline.com/doi/full/10.1080/00288233.2017.1351377
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