Three challenging numbers

Conor English Chief executive

There has been a lot of discussion recently about New Zealand's meat industry. We all want more profitable and sustainable farming. Meat farmers have been concerned that their gross incomes are a bit lower than dairy farmers on similar sized farms. For meat, three numbers make bridging that gap challenging.

Firstly, the weighted average kg/ha production for meat farmers across all land classes and regions for 2011/2012 was around 187kg/ha (lamb - 90.77, beef - 66.43 and wool-30.16).

According to DairyNZ, the average kg of MS per effective hectare for the 2012/13 season was 988 kg MS/ha. Despite issues with assumptions made to get these numbers, the basic maths is that dairy farmers produce roughly five times the weight of product per hectare.

Secondly, again roughly speaking, both meat and milk receive around $6 per kg on average over the years.

So to make up the difference, either the meat farmer needs to produce five times as many kilograms as they currently do, receive five times the price per kilo, or a combination of both.

The third number is the capital invested. There will be meat farmers achieving higher returns on capital than some dairy farmers. However, generally dairy farmers do invest more capital both on- and off-farm than meat farmers, so their gross income is therefore likely to be proportionately more.

Recently, I explained that it is unrealistic to expect a return from an asset you don't own. I can't receive rent from the neighbouring house if someone else has invested in it.

So there is an issue about how much and where capital is invested. This is true for both dairy and meat farmers.

Some suggest over-capacity is a significant issue. The printing industry has the same issue and the market has dealt with it.

To make any progress, it is going to take more than incremental thinking. Until meat farmers produce or invest far more per hectare, or meat companies are able to extract far more significant returns from the marketplace, the relative gross income gap between meat and dairy farmers will continue. This is a similar situation to the gap in income between dairy farms and kiwifruit orchards.

Some great progress has actually been made by farmers and meat companies alike. However we need to keep at it.