Graeme Nicoll - 'dairy farming - Riding the rollercoaster'

Thank you, Ian. As Ian said, I want to give you a farmer's perspective. I'm going to bring some statistics and graphs today. And it's a bit ironic, a dairy farmer bringing statistics and graphs to an [INAUDIBLE] conference. But I want to present them in the way the farmers and the farmers that I discuss agriculture with looking at the dairy industry now. So this is my perspective on where I say our industry can transition to. To start with, I think we have to address there's some confusion about the dairy industry. A lot of people struggle to understand the dairy industry. There's a lot of maybe around the industry. And a lot of it is very region specific. So I want to focus my presentation on 2/3 of the dairy industry. And that's the southeastern Australian sector of the industry-- Victoria, Tasmania, southern part of South Australia, and the southern part of New South Wales. This is the sector of the industry which drives the Australian dairy industry. So why am I here? I'm a dairy farmer from South Gippsland, as Ian said. And-- let's hope I go forwards. And I farm below that straight line there, which is an old railway line. This is our farm with the dams, Wilsons Promontory in the background. So this is deep south in Australian terms. In 2010, I was awarded a Nuffield scholarship. And I had the opportunity to travel through North and South America, western Europe, New Zealand. And I was looking at resilience in the dairy industry. So it was a perfect time. I was talking to operators around the globe, getting an understanding of how they responded to the [? JFC ?] or the shocks that they had had in their businesses and how that related to the Australian perspective and where our industry was positioned at the time. So up front, to where I see the industry-- I want to start at a macro. And I'll move right down to a farming level. Because it's very easy in the dairy industry, and we're really good at doing it-- at blaming the other end of the industry for all our problems. I think there's improvements to be made at both ends of the spectrum. But I do believe there is huge potential for the Australian dairy farming system. We run a middle ground. We sit between the New Zealand low-cost system and the northern hemisphere high-cost system, which uniquely positions us. We're one of the few dairy industries in the world which is based in close proximity to a commodity grain-growing region with stable governance, which does provide us with huge opportunities. We're faced with challenges at the moment, with our economy, with the dollar, as we've heard over the last two days, and with labour input. But our farming system has great potential. Biologically, as far as efficiency from grass to cow, we're world leaders. So we've got structural things around our industry which are constraining our industry's growth. So as we've heard from several speakers, we're in a new norm. I've stretched this graph out from what you've seen so far this morning, showing the volatility in the industry. This is the global dairy trade, which has been referred to several times. And it's the index of the global dairy trade going right back to 1999. You can see we are in a new paradigm. We're in a new norm. And this is creating challenges. This is creating challenges to mindset for farmers. It's impacting on decision making, this volatility. We have an industry that's struggling to deal with this volatility. But as we all know, with volatility comes opportunity. We're constantly told of this opportunity. And I was looking for ways to represent this opportunity. And Trish showed several earlier. And as a farmer, we're constantly told the potential for the dairy industry is huge. We've got this increasing demand in the growing nations around the world. So we hear this as farmers. But the constant line from farmers is, well, show me the money in the dairy industry. So I figured this is probably one of the better ways to represent it. It's blunt and it's strange. It's not a graph. It's just particularly blunt. This is the message that we're getting. So where are we now in the Australian dairy industry? This graph's compacted in the first three bars. So make sure you check that bottom bar before you start taking it completely. But what I'm trying to illustrate here is the Australian and the New Zealand dairy industry tracked comparatively, right up into 2000. Then the New Zealand industry took off. And the Australian industry stagnated. And there's many factors that brought that change in the Australian industry about. And it was probably originally driven with drought. But there's more than drought in that. Some will say, well, it's deregulation. Well, I'll put the Victorian industry there underneath. It tracks the Australian line very closely. So it's not deregulation that's driving the stagnation of the dairy industry in Australia. That growth in that graph was driven through 1980 to 2000 by significant productivity gains. Why aren't we seeing them now? We need to look at what they were back then. It was around improved pasture management and fertiliser management, increased amounts of nitrogen coming into our systems, increased supplementary feeding with associated increase in feed conversion efficiencies, and increased stocking rates. So those gains were all had in that period. And we've failed to see the next step. So standing around with the group of farmers-- this is our farm, back in November at a discussion group meeting there. There's a lot of crossed arms. It's a bit of a negative sort of feeling. What are the farmers talking about on the ground? When we get together, what are we discussing? What are the hot topics? Well, that day, one of the big hot topics was payment structures. The industry at the moment has a lot of milk processes which are competing for milk. But they don't have a margin to compete on price. So they're competing with payment structures. And these payment structures are sending signals to the dairy farmer about how they should supply milk, what their production curve through the season should look like. And some of these signals are impacting on growth in the industry. They're driving milk dairy farmers down a path of lower resilience in their system. They're driving them down a higher cost production, a higher cost of production path. Because they're trying to flatten out their milk production and not getting the economic response for that. So this is taking Australia away from the New Zealand model and pushing us more towards the northern hemisphere model. And as an industry, we're struggling. And the dairy farmers in particular are struggling to find that middle ground. Those payment signals that we're getting are confusing the response that farmers are making in their management systems. But we need to come back to the key profit drivers of our industry. And that's cows and pasture. That's how the Australian dairy industry's got to where it's got to. That's how that growth cycle that we saw leading up to 2000 occurred. And that's where our potential for our industry remains-- efficient operations on pasture-based. If we go down the path of the higher cost, moving away from pasture-based, we cannot compete on a world scale. We cannot compete with the Americans. We have to focus at what we're good at. And that's converting pasture to milk with the benefit of bringing a bit of grain in on the side that the Kiwis can't do. So we do have that advantage over them. I want to come now down to a micro. Because it's really easy as a dairy industry, dairy farmers, to say, Simons, Fonterra, they're messing us around. Their payment structures are our problem. That's why we're not moving ahead. That's why our industry's stagnated. But I think there's some things at every sector of the production chain we can change. And this is just an example of one thing on the ground on a dairy farm that can lead to productivity growth to the industry. We need to challenge the sacred cow in the Australian dairy industry. We need to think differently. The Australian dairy industry has gone down the path of Holstein-Friesians. And this is an inbreeding index down the side. And don't worry too much about the x and y-axis on this graph. Just worry about where that line's heading. It doesn't look very good. It doesn't look very exciting if that's an inbreeding index. The Australian dairy industry is not realising heterosis gains that all the other intensive agricultural industries have. Pork, chicken-- they've all gone down the path of heterosis, of crossbreeding, hybrid vigour. For some reason, the sacred cow in Australia is black and white. This is just a bit of an example of work that's come out of the University of Minnesota. It's a bit of a complex chart, but I'll bring you straight to the bottom line. The profit percent are over Holsteins. So this crossbreeding trials are showing huge increases in potential profit over the standard Holstein. Yes, this is a housed system. The University of Minnesota work was done in California. But if we could realise 10, 20% of those gains, that'd be huge gains for our industry. So want does the future cow look like? We need to challenge the sacred cow. This is a three-way cross cow at the University of Minnesota. It still looks like a dairy cow. So we need to recognise the future of the dairy industry is the responsibility of everyone in the production chain. The future of the cow may not be black and white. So what are the strengths, just to sum up where our industry's at? We are lower. We're not low cost like New Zealand. But our operating system is a low-cost system. We've got embedded costs that are growing all the time with labour. And when we talk exports, our dollar also translates into increasing our cost. But we are still low cost on a world perspective. We are experienced and skilled at managing a volatile marketplace. The Europeans coming out of their trade in 2013, 2015, and rolling. Their quota system-- they don't have the experience of managing a volatile marketplace. We have the skills to do that. As Victorian dairy farmer, we experience volatility. We have the critical mass in our industry. We have the infrastructure. But if you go back to that chart that showed our production decline, if we don't maintain that critical mass, we will become increasingly irrelevant on global markets. Last year, Australia's percentage of milk exported dropped below 40% for the first time in a long time. We need to maintain a presence on the global dairy trade to maintain our relevance. So to sum up my key points-- we are farming in a volatile marketplace, but that does provide opportunities. We need resilient farming systems. We need farming systems that respond to the market signals that we're getting and that can respond. We need strong RD&E programmes. If you go back to that period pre-2000 when we tracked with New Zealand, we had some strong RD&E within the industry. RD&E has failed the industry in the last 10 years, probably 20 years. And we do need to focus on the profit drivers on farm. The profit drivers for the Australian dairy industry have been and will remain our pasture base. So thank you very much for listening this morning.