22/03/2014
Fairfax NZ
Top sheep and beef farmers are closer to dairy farmers in earning power than they might think.
Good performers on northern East Coast farms are yielding 8 to 12 per cent on total capital invested in their business including the value of the land which is better than many dairy farmers get in an average season.
Former Beef + Lamb chairman Mike Petersen said sheep and beef farmers needed to stop beating themselves up and recognise they were not doing as poorly as they thought.
"Right across the country we have a number of sheep and beef farmers doing that and they are the better performers," said Petersen, who stood down as chairman last week and is New Zealand's agricultural trading envoy.
"If you look at the return on capital in the dairy sector, and admittedly they are having a cracker year and a lot will be doing 12 per cent but over time they will do about 5 to 8 per cent and the value of their land is higher, so if you look at total capital employed [our top performers are close]."
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Many of the best performing sheep and beef farmers are on hill country farms worth about $7500 a hectare and if this returns 5 to 8 per cent that's a range of $375 a hectare to $600/ha in earnings before interest and tax.
Petersen said the improvements farmers could make on their farms had the largest effect on improving profitability and this was available through existing knowledge, tools and technology available today and would be accelerated by new developments from the industry and government red meat Primary Growth Partnership (PGP). Average farmers with 500ha properties had the tools to raise profitability by $100 a hectare and closer to $200/ha. The best farmers were performing at the highest level over all ages, land classes and debt servicing, he said.
The PGP partnership project gave the tools farmers needed to make improvements in productivity, animal performance, pasture and feed, business and management skills.
Petersen said sheep and beef farmers could generate a return of 30 per cent which was not too dissimilar to dairy returns if they did the equivalent investment dairy farmers made to put in new dairy farms. The investment in fertiliser, water and subdivision would provide extra returns. He said sheep and beef farmers were running the risk of pulling themselves apart because of the success of dairy, but it was a different sector and they shouldn't be sidetracked with meaningless comparisons.
"If you look at the productivity gains on the ground, sheep and beef have exceeded every sector including dairy.
"Back in 1990 we had 60 to 70 million sheep and we now are producing 7 per cent less sheepmeat from 30 million sheep. The politicians know it but we often forget that in our sector."
Petersen said New Zealand meat processing - chilled meat technology, hygiene, preparation of stock and value-added cuts, meat quality and the shelf life of meat - was as good, if not better, than anywhere in the world.
"There is a lot of stuff that is so good about the sector. If I have a frustration it's that we haven't been able to get this more widely accepted."
He said no-one doubted there needed to be change in the sector and the Meat Industry Excellence (MIE) reform group had done a great job in getting farmers engaged, but its negative tone was based on the need for change otherwise the industry was doomed.
"We are an $8 billion export industry and MPI figures showed recently we are $1.7b above their forecasts."
Petersen was correct last week in predicting farmers would vote in favour of a remit supporting the plan to bring back a levy for wool research at Beef + Lamb's annual meeting in Feilding last Friday. This still had to be approved by the board in April.
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