New grass worth billions

Pasture renewal could lift the farmgate value of dairy farm production by between six and 25 percent, says an economic study prepared for the Pasture Renewal Charitable Trust (PRCT).

The increase in value that could be generated by increased investment in pasture renewal would be equivalent to increasing the national dairy herd by 25 percent or doubling the national beef herd, trust chairman Murray Willocks said at the study’s launch. The economic analysis of the value of pasture by Business and Economic Research (BERL) presented a compelling argument for increasing investment in pasture renewal, he said.

Federated Farmers president Don Nicolson agreed the study highlighted not just the value of pasture to the New Zealand economy but also the great potential to further increase productivity.

Farmgate returns

“Based on the latest payout, an increase of just one tonne of dry matter (DM)/year over the 1.96m ha in dairying, would increase farmgate returns by well over a billion dollars,” he said.

“That’s not more cows/ha but an increase in the feed/ha that is then converted into milksolids (MS). It’s called efficiency, not intensification.”

The project was commissioned by the PRCT to gauge the size of pasture-based farming in New Zealand and the impact of pasture renewal on the national economy. BERL’s report affirmed that the dairy industry is the biggest contributor to pasture-based products, valued at $10.2b in the June 2007 year. The farmgate value of dairy products was $6.6b (65% of the total value of pasture-based products).

Pasture renewal has the potential to greatly increase productivity, the report said. The magnitude of this increase would depend on the level of pasture response and whether the increase in pasture renewal is once-only, for one year, or sustained continuously.

Subject to the renewal response, BERL reckons the farmgate values for dairy farms could increase by six-25 percent. For its economic modelling, BERL used the midpoint of the range.

Accordingly, farmgate values for dairy farms could increase by 15 percent. With the lift in sheep and beef farm values, the direct impact on gross domestic product (GDP) would be lifted by $5.2b-$6.0b.

BERL then considered the effect that the pastoral sector has on related industries, such as agricultural services and the food processing industry, and the additional spending generated by salaries and wages paid by farmers. Increased pasture renewal would lift numbers directly employed in pasture-based industries to 41,100 from the 2007 estimate of 35,400.

Employment in upstream and downstream businesses would be lifted from 277,300 to 321,600.

The contribution of pasturebased products to total GDP when those impacts are included was valued in the 2007 June year at around $20.5b, or around 12% of total New Zealand GDP.

Dairy contribution

The dairy industry contributed a hefty $13.6b of that figure, while $2.4b was contributed by beef, $4.3b by sheep and around $250,000 by deer products. Pasture renewal would lift the total to $23.7b. The report said around 460,000 international tourists would need to be added to the present 2.4 million a year to generate the same level of additional expenditure for the tourism sector.

For dairying, pasture renewal could potentially increase the contribution to GDP of pasturebased products (including indirect and induced effects) from $13.57b to as much as $13.78b.

When analysing dairy product value, BERL’s main concern was with the discrepancies between dairy farmgate price and export value for the 2007/08 year.
Both had a similar value, which the report said “is strange considering the significant levels of processing and transport costs between farmgate and exports.”

Some of this would be due to domestic consumption. But BERL expected a much larger margin in terms of value added. According to the Customs department, exporters are relied on to provide estimates of export value because Customs is mainly focused on imports, where duties and taxes may apply.

Fonterra figures

BERL said a more accurate estimate of dairy value has been derived directly from Fonterra accounts. This does not include the value of the farmgate payout and value added from the independent companies, but does provide ratios of these numbers that can be applied to total production.

Data from 2003 to 2008 indicate the farmgate payout, apart from Fonterra, would have been about $520m in 2006/07. For the purposes of its study, BERL says the ideal level of pasture renewal is 12% of the area for dairy farms as determined in a 2008 market research study by AgResearch.

Dairy farms had a level of pasture renewal of 6.1 percent in 2006/07. If this level was increased to 12%, BERL would expect an increase in farmgate values of between 0.4 and 1.6%.

BERL’s report noted that quality information on the level of current grass growth in terms of dry matter (DM)/ha was hard to come by.

“This is clearly an area in which further investment in research should be considered to provide region- and industry specific data on pasture renewal to farmers,” Willocks said.

The challenge now was to increase overall pasture production through the genetic gains made in the breeding of both ryegrass and white clover cultivars coupled with improved pasture management.

Published courtesy of Dairy Exporter January 2010.