Producing more and more milk not New Zealand’s future: Landcorp head

Landcorp chief executive Steven Carden says the business is reviewing all land conversions and looking for alternate uses for land that are economically more viable, and environmentally more suitable, than dairy farming.

“I think if you look at Landcorp – and we farm throughout the country – we are looking at all of our land portfolio and thinking, “What is the right land use for it?” And I think what we’ve found is that we can’t really find dairying as the justified new additional land-use conversion option,” he told Corin Dann on TV One’s Q+A programme.

“So we are looking at alternatives. I think New Zealand can sustain a few more cows, so long as there are the farm systems set up to do that. So people are looking at herd homes and other farm infrastructure which would require us to farm quite differently but allow us to produce more milk. Having said that, that’s not our future, I don’t think, as a primary-sector country, to just produce more of a commodity product like milk, necessarily.”

Mr Carden also told Corin that the company, with a 140 farms around the country, would also be considering using its land for crops.

“It’s a new shift for our organisation to start looking at alternative land uses outside of traditional pastoral animal land uses. We’ve got a sheep milk business underway, we’re looking at deer milk, and now we’re starting to look at more plant-based proteins as an alternative.”

RAW DATA: Q+A transcript: Landcorp chief executive Steven Carden

Watch the interview here

GREG    Landcorp is our biggest corporate farmer with 140 farms around the country. It's state-owned, but like other businesses involved in dairy, they've had a tough year, posting a $9.4 million operating loss in the year to June. Its chief executive, Steve Carden, sat down with political editor Corin Dann at the end of last week to talk about the future for the dairy business. Corin began by asking whether the SOE was having trouble finding Kiwis willing to work on the farm.

STEVEN    The farming sector is concerned about the number of people coming into farming, in particular. Farming’s becoming much more complex, much more technology-driven and data-driven than it has been in the past. So naturally what it takes to be a successful farmer is changing quite quickly, and we are concerned there aren’t the right number of skilled New Zealanders coming through for those roles.

CORIN    So it could be a problem in the future? If the training isn’t done, you would need to look offshore more. So something needs to be done in that training area.

STEVEN    Correct. I mean, we have a requirement for, I think, 50,000 new people to come into the sector to meet its growth plans in the next five years or so. So clearly that puts a lot of pressure on the schools and universities to produce people with the skills we need to farm what are very complex businesses as farms.

CORIN    And you come back to that point about what it is to be a farmer – the branding, your brand – but I guess the attraction for young New Zealanders. How do you get that right?

STEVEN    Well, I think young New Zealanders expect different work conditions and different outcomes from their employment than those in the past. Many won’t be in farming forever. They’re coming into farming and they expect to be kept safe, and they don’t expect to do unusually long hours; they expect to work in farm environments that look after the environment; they want to have access to good technology and be connected through social media, which is often difficult in rural settings. So their expectations of what we need to do as an employer continue to lift, and that requires us to lift our game, as a result.

CORIN    So you need to provide them with Wi-Fi and things like that, don’t you? 

STEVEN    Yeah, correct. They’re on social media the entire time. They want to be on Facebook. In fact, they  use Facebook as a work tool now. So we need to be investing in our broadband and bandwidth for staff so they’re connected.

CORIN    And do you come across any issues with attitude in terms of Kiwi workers?

STEVEN    No, not at all. In fact people who are going to farming, I think, have a passion for farming. It’s not an easy job. It requires you to be very committed to do quite long hours at times. You’re up at 3am in the morning to milk, if you’re on a dairy farm. But people love what we’re about. They love where we’re going as a company, and I think they’re very passionate about doing something that’s very meaningful for them for this country.

CORIN    Looking at where you are, you’re a massive operation – 140 farms across the country – pretty much the biggest operator in the country. But you have cut back quite a bit in dairy since the slump in prices. So, what about 55,000 cows? Now, that would be quite a reduction in where you were. Why the sudden pull back? 

STEVEN    Well, it’s not so much a reduction in the number of cows that we have, but we’re just choosing to not do as many new conversions of dairy farms as we had planned to do. I think, like a lot of New Zealanders, we’re concerned about the environmental footprint of extensive dairying and have taken a move as our strategy to shift away from being exposed to marginal conversions, which also give us lots of exposure to commodity milk, which is essentially what we’re producing.

CORIN    Was it the environment or was it the fact that the milk prices collapsed – that you had no choice, really?

STEVEN    No, this had been on the cards for a few years. In fact, we made this decision when the milk prices were at $8.40. We just weren’t seeing either the long-term returns coming off those conversions or the right environmental metrics coming out of those farms, and we were quite keen to re-allocate our strategy towards more value-added products over time.

CORIN    I mean, it’s been picked over a fair bit, the reality was Landcorp got locked into some massive amounts of conversions in the Wairakei area  around Taupo. What’s happening there? You’re still stuck having to do these conversions – 40-year contract, wasn’t it?

STEVEN    It’s a 45-year lease, and we are not putting as many dairy farms on to that lease as we had originally planned. We’re going to do about half the number that we’d originally planned and are looking for alternative uses of that land which we think are both economically more viable and environmentally more suitable.

CORIN    That’s interesting. Do you think that might have been the peak for dairy in New Zealand? People talk about it – intensification; yes, the price slumped – but do you think that maybe New Zealand has reached a peak in terms of that conversion rush that was on?

STEVEN    Mm. Well, I think if you look at Landcorp – and we farm throughout the country – we are looking at all of our land portfolio and thinking, “What is the right land use for it?” And I think what we’ve found is that we can’t really find dairying as the justified new additional land-use conversion option. So we are looking at alternatives. I think New Zealand can sustain a few more cows, so long as there are the farm systems set up to do that. So people are looking at herd homes and other farm infrastructure which would require us to farm quite differently but allow us to produce more milk. Having said that, that’s not our future, I don’t think, as a primary-sector country, to just produce more of a commodity product like milk, necessarily. 

CORIN    So what does that mean for things like the Ruataniwha Dam, for more water storage, for more intensification? Are you saying that it’s marginal?

STEVEN    Well, I think people have a very high threshold now for what a suitable use of land is, given the environmental impact that people expect from that land use. Clearly we need to use our resources very effectively, and water is a scarce resource globally that we have an abundance of. So irrigation schemes do make a lot of sense, but I think the environmental threshold’s quite high now to justify.

CORIN    And it’s not just the environmental threshold; the public threshold has risen, hasn’t it? Do you get a sense that the public is becoming, obviously with Havelock North, more concerned about water quality. And rightly or wrongly, they’re pointing the finger at agriculture, intensification of farming as an issue. Do farmers, whether they want to or not, have to think about that?

STEVEN    I think all farmers are very aware of the issues and are wanting to do the right thing by the environment, and certainly at Landcorp that’s a core part of our strategy. We recognise that consumers have different expectations now about not only how their food tastes but also how it’s produced, and we need to be showing them that we can produce their food in a really environmentally sustainable way.

CORIN    Farmers on an individual level farm by farm may feel like they are environmentally conscious, but collectively it can create problems around nitrogen run-off if you’ve got lots and lots of dairy farming. You as a big player, what can you do to lead and I guess convince people that you’ve got to be more conscious about that intensification and the nitrogen run-off and those sorts of things, cows in the streams?

STEVEN    Well, I suppose what we can do is lead by example and make sure that our farms are as clean as possible, so we have a big riparian planting programme underway, like the rest of the country does. We’re really looking at land use, so taking very intensive land uses away from land which isn’t suitable. We’re looking at how we can apply our inputs, like fertiliser, in much more precise places so there’s less run-off and less wastage. So we’re employing a whole lot of new technologies to ensure we have the most environmentally sustainable farms.

CORIN    What about crops? Will you look at crops as opposed to just livestock?

STEVEN    Yeah, absolutely. It’s a new shift for our organisation to start looking at alternative land uses outside of traditional pastoral animal land uses. We’ve got a sheep milk business underway, we’re looking at deer milk, and now we’re starting to look at more plant-based proteins as an alternative.

CORIN    You’ve put quite a big focus since you’ve come in on the branded value-added side of the business. You’ve got the new meat brand. As a whole, has agriculture suffered in New Zealand because of a lack of that and do companies like Fonterra need to lift their game with the value-added?

STEVEN    Well, I think for 150 years New Zealand’s been great at producing lots of meat and milk off the hectares under farm. But what we’re finding now is we can’t continue to just have that as our primary strategy. We have to look at ways in which we can extract more value from our products. And that means differentiating our products in a way that consumers offshore are prepared to pay more for, so that’s new products and also finding alternative ways in which we can produce existing commodities like milk, say, for example, in organics or grass-fed programmes or antibiotic-free milk that does attract a premium offshore for those particular consumers.

CORIN    Just very quickly on your result – an operating loss of around 9 million. On an asset of $1.7 billion, I guess you could see why the Government, I think, has said things like disappointing about where Landcorp is at at the moment. Why can’t you sort of drive a bigger result off an asset that big?

STEVEN    Well, we had a $30 million profit two years before that based on a high milk price. I think the frustration in farming is it’s a capital-gains business, capital growth, so the underlying value of the farms increases and that’s how farmers make most of their money. And if you look at Landcorp’s assets over the last 30 years, we’ve had a 9.5% return year on year, plus paid half a billion dollars’ worth of dividends back to the New Zealand people, which is a fantastic result in any business. But year on year when you’re exposed to commodities in farming, you get years when you make a lot of money and years you don’t make much money. That is unfortunately the shift we we’re trying to make in our strategy to get away from it.

CORIN    So what’s the bit that makes it worthwhile keeping Landcorp? Because if you’re just making that return and holding that asset, what’s the benefit for the government? Where’s the added value in owning this?

STEVEN    Well, I think the added value is that Landcorp at this scale that we farm is able to innovate in a lot of areas that others can’t. So if you look at what we’re doing around development of new products like the sheep milk and the deer milk opportunities, the new farm systems and innovations that we’re developing, the new environmental standards that we’re rolling out, big investment in safety programmes, all of these become over time available to the general farming public. It is very hard for individual farmers, even collectively, to generate those innovations without the scale that Landcorp has.

Tune into NBR Radio’s Sunday Business with Andrew Patterson on Sunday morning, for analysis and feature-length interviews.

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