Big Dairy and the Squeeze on Small Town New Zealand

Working in the dairy industry is hard work. It requires a huge amount of dedication to work before dawn every day in often harsh and difficult conditions. That hard work was once an investment New Zealand farmers made, as they earned their way to achieving one of the age-old dreams of this country—becoming a farm-owner.

For young dairy workers in the 80s or 90s, if they were smart with their money and worked hard, the trajectory towards partial or full ownership of a farm could be as little as five years in the industry.

But now, with rising farm and herd prices and the increasing corporatisation of New Zealand’s dairy industry, what was once a five-year plan has quickly become a 15 to 20-year one.

Speaking to young dairy farmers, it is clear a sense of hope has been taken from the industry. A 23-year-old dairy worker in Taranaki we will call John—as he wished to remain anonymous—said while the dream once was the ownership of a farm, now, it is simply having a job at all and the ability to look after your family.

Ownership makes people invested in their surroundings and neighbours, and so acts as one of the cornerstones of a community—especially a rural one. As ownership dwindles, so does the community of rural New Zealand.

START Taranaki is an intervention programme for at risk youth in the region. Chief executive Neville Phillips said the consolidation of New Zealand farms is destroying some rural communities.

“One big dairy company took over a couple of the smaller ones in the area, and that gradually grew to the point where there was only one major dairy factory in Taranaki—so many jobs were lost.”

“The effect of all these small dairy factories shutting down, is that all those small rural towns are just shutting down also.”

Neville said with these factories gone, local businesses lose their clientele and also shut down. As the township disperses, house prices plummet, and locals lose even the option of moving on.

“The houses become pretty much worthless, so the people left there are left with their houses which are hard to resell—they are stuck there. Older couples die off there.

“Soon, it becomes like a ghost town.”

START Taranaki board member Peter Barleyman said the organisation has seen how the disestablishment of these communities has had a direct effect on rising youth crime rates in the region.

“The lack of belonging and that sense of community is at the heart of many of [Taranaki’s] issues,” Barleyman said.

WATCH: Check out the latest episode in our documentary series Zealandia to see how these factors are contributing to youth crime in the region, and the work START Taranaki are doing to combat it.

Although Neville has seen jobs lost as smaller farms are consolidated, Dairy NZ strategy and investment leader for people and business, Mark Paine said they have not seen this consolidation trend affecting the overall number of job opportunities.

“The consolidation, with fewer larger farms, has got a number of implications—but loss of employment, to date anyway, has not been a major one for rural communities,” Paine said. “But, the extent to which automation and mechanisation starts to come in and displace staff, who knows?”

With these issues arising from the corporatisation of the New Zealand dairy industry and the resulting loss of community, the question arises around whether this is just a bump in the road for this increasingly volatile industry? Or, are we witnessing the death of this Kiwi dream, and as a result, the rural NZ community?

The Corporatisation of NZ Dairy

Over the past three decades New Zealand has seen a definite downwards trend in the number of dairy farms due to the consolidation of farmland by wealthy owners, trusts and corporations—with the average farm size doubling since the 1980s from 65ha, to 147ha today.

As a result, there has been an almost 25 percent drop in the total number of dairy farms in New Zealand since 1986, going from 15,315 farms to 11,748 in the 2016/17 year.

This trend is even more pronounced in Taranaki, where there has been an almost 50 percent drop in the same space of time—going from 2,958 farms in 1996 to only 1,657 today. The trajectory of this trend indicates that this drop would be more significant, if not for the milk price spike in 2008 which halted the downwards progress.

ASB Bank senior rural economist Nathan Penny said the milk prices have had a pronounced effect on how much consolidation is happening. “Prior to 2008, there was a trend where the number of farms was falling, but that trend tapered when the milk price lifted. Between 2008 and 2015, that trend halted.

“What we think happened there, is that with the dairy price lifting, effectively more farms have become economical and feasible—keeping more farmers and business viable over that time.”

However, since the dairy downturn in 2015, Penny said this trend has kicked back in—with the number of farms dropping as consolidation once again begins to occur. Penny and his team expect this trend will continue for at least the next decade, because of several key factors which make it easier for farmers to sell their farms than to continue in the industry.

“The business has become more complicated—farmers are having to handle the volatility of the milk price, as well as environmental compliance requirements and a whole lot of other small things, such as health and safety,” Penny said.

Paine agreed that these increasing obligations are quickly becoming unmanageable for smaller herd farm owners. “If you are a one-person owner-operator, the pressure these days can almost become untenable.”

Paine said in the face of this consolidation trend, some small farmers are banding together to meet the increasing complications of Dairy. “We were approached eight years ago by a group of farmers who said, ‘there is a large herd conference, but where is the small herd conference?”

These farmers went on to form SMASH (Smaller Milk and Supply Herds), a support community through which small herd farmers can share their knowledge and keep up with the increasing demands of the industry.

“They believe there is a future for small farms, that they are very important to the dairy industry. They are working to support and represent themselves to make sure they are here for the long-term. We have been supporting them for eight years with that mission,” Paine said.

Despite groups like SMASH, many small farm owners and operators are finding themselves ill-equipped to deal with many of the new complexities of the industry, and so are choosing to look at doing something else, or simply retiring.

“The last five years has been an incredibly demanding time for dairy farmers in the country—with milk price effect and with challenging seasons,” Paine said.

“We are just at the stage where farmers are just a bit exhausted actually.”

Retiring is a large concern for the dairy industry, with the average age of farmers quickly approaching retirement age and with not enough young farmers coming through to take the reins, due to a pronounced “decrease in interest in farming by the younger generations”, Penny said.

This lack of interest is understandable when you look at the continuing volatility of milk prices and the increasing difficulty of operation.

Even if, despite these complexities, a young farmer still wanted to become a dairy owner, it has never been more difficult to do so, due to rising land and herd prices.

The decline of the dairy worker

For many young people in New Zealand, the concept of property ownership is quickly becoming unattainable under normal circumstance—this is particularly true in an industry as expensive as dairy.

“If you talked to a young farmer in Taranaki 20 years ago, he probably would have just gone looking for a farm and found one,” Penny said.

“Whereas today, there aren’t many farms that are going to be within a young farmer’s budget or reach.”

In Taranaki, the average price per hectare of farmland is $38,025 and the average dairy farm size nationwide is currently 147 hectares. So, if a young farmer in Taranaki wanted to purchase an average sized farm, they are looking at a purchase of almost $6 million dollars.

Entry-level dairy workers are mostly paid minimum wage and work their way up to a salary of around $50,000 in the first five years in the industry. You don’t have to be a math whizz to see that this gulf between land price and this income is insurmountable.

The other option for young farmers is share milking, where they own some or all the cows, use the land and facilities of another farmer and share the profits. But, the increasing price of dairy cows makes even this approach a tenuous one. The average herd size is currently 419 cows, even taking a conservative pricing of $1000 a cow, that is still a $419,000 investment.

Plus, investing in livestock is obviously a much riskier proposition than land, with factors such as age and illness to consider. These risks are currently being illustrated by the quarantine of 30 farms across New Zealand, due to the Mycoplasma Bovis disease outbreak. MPI expects they will have to euthanize over 22,000 cows to curb this epidemic.

With such large amounts of capital necessary to invest in or own farms in the dairy industry, Penny said young farmers are going to have to get creative with how they raise this money.

Farmers may have to turn to other industries to do so, Penny said. For instance, farmers could begin in sectors which require less upfront capital, such as beef or lamb, and use this to generate the money necessary to buy a dairy farm.

The other reality, is that farmers may have to leave their homes to buy farms. Taranaki has particularly high land prices, which means young Taranaki farmers may have to move to areas with lower land prices to buy their first farm, such as Northland or the West Coast.

Of course, in regions such as Taranaki, this will compound the issue of splintering rural communities. For instance, John said he has had to chase work all across the country. In only three years, he has had to move four times for work—first, to the Manawatu, then to Napier, then Christchurch, and now, Taranaki.

“People born in the Taranaki used to be able to stay and work in the Taranaki. Now they have to chase the work all across the country,” John said.

John said in Taranaki, as the season is coming to a close, young dairy farmers are desperately looking for work for the next season. But with fewer farms, there are fewer jobs available. On farming job site Farm Source, there are currently 7,000 people on the list for Taranaki, and only 61 positions going.

John has goals to own his own dairy farm, but acknowledges he has a long way to go, having only been in the industry for three years—and even then, there are no guarantees. “I know people who have worked these farms for years and have just had to take a job as a farmhand—because, the job they want is just so far out of reach,” John said.

As we talked John starts to reflect on just how difficult it will be to carve out his place in the dairy industry, and the unfairness of how much easier it was for people in a similar situation a generation before—or even now, in other industries.

“If you do a year at trade school, then a four-year apprenticeship as a builder, you walk away self-employed,” John said.

This draw towards other trades is a factor in why these rural communities are disintegrating—as young people follow the money into urban trades and away from the rural sector.

This difficulty for young farmers, and the continuing consolidation of NZ dairy land, paints a troubling picture for the future of the New Zealand dairy industry. But just as worrying is the future it could create for our country’s rural communities—or perhaps, the lack of them.

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