Federated Farmers Dairy Chairman, Lachlan McKenzie, addresses the 2009 Veterinary Association Conference in Rotorua

I believe the outlook for grass-based dairy farming has never looked better. Why? The price for milk products rose sharply a little over 12 months ago. The reasons being that demand outstripped supply for a number of years and there was limited stock worldwide. As a matter of fact, 95 percent of New Zealand’s production is exported, but just 7 percent of our total dairy production is traded across borders, so any small shift in production has a big effect on international prices.

Yes, there will continue to be volatility in milk prices over the next few years, but there is no doubt grass-based dairy farmers will have the advantage.

Now, let’s look at a few more figures. About 90 percent of the world’s milk production comes from confinement cows, or cut and carry, or housed cows - call it what you like, really. Nearly all of the feed is brought to the cow and much of it onto the farm as well. Recently, on a trip to Japan, I visited a dairy farm where all the feed for the milking cows was not only imported onto the farm, but into the country as well.
These farms are highly dependent on energy and grain input costs. This means the underlying costs of 90 percent of milk production will increase as grain and energy both become more expensive.

So what have we seen over the past two years? As milk prices increased faster than the cost of feed (milk to feed ratio widened), milk production increased, particularly in the United States (US) and European Union (EU). Milk production increased by over 2 percent in the US, while the milk quota increased by 2 percent the EU. As you would expect, milk prices dropped as a result. Right now even, as the milk to feed ratio deteriorates, there is a downsizing of herds in both the US and EU.

What is the outlook for grain prices? Grain inventories have halved since 2000 from a peak of 130 days grain-on-hand, to just 55 days. The world is facing an acute shortage of grain over the next few years, which will drive grain prices up. That in turn will lead to an increase in the price of international traded milk. Why? Because as the milk to feed cost ratio deteriorates there is always a rapid adjustment in milk supply. This leads to rising milk prices, as farmers cannot produce at these low prices. This is good for New Zealand farmers as long the cost base is always kept low enough to survive the down turns.

So that is my take on the international scene, now to New Zealand dairy farmers. While the number of dairy farms is decreasing, the size of your average dairy farm is increasing. Fonterra has gone from 12,067 suppliers in 2003/04 to 10,717 in 2007/08. That’s a drop of 1350 in just four years. This trend will continue but at a slower pace, as there is a limit to the size of each dairy unit under a grass-based feeding system. As you all know, cows can only walk so far before it starts to affect production.

Small farms will decrease in number and there will be more multiple-owned farms. But at the same time, more farms will have equity managers or sharemilkers on them. This means stock managers will still be present to make decisions, but the people who decide policy may not be present on-farm. As a result, more farmers and their staff will use the internet both on and off the farm.

Now let’s look at vets from a farmer’s perspective. First the good news. Surveys have confirmed that vets are the most trusted source of information a farmer can access for animal health information. What’s more, farmers are keen for vets to be a valued partner in their farm business. Now the bad news. Vets do not understand farm profit or the design of farm systems. Many advisors contribute to our farm businesses including bankers, accountants, fertiliser representatives and vets to name just a few. All have their place, but none pull all of this information together in order to assimilate it into the farm system.

We all know feeding our pasture feed cows more will increase production, but with this comes trade offs in terms of pasture quality and future production. Unless things have changed dramatically since I was at varsity, vets get very little training in pasture management and it is the same for farm profitability. Many analysts use gross margins to compare treatment option A against option B, but do they ask where it fits into the farm system? Or if there are other options that are more profitable or areas where money should be spent to produce a bigger return?

I will give you one personal example - drenching my dairy cows at drying off. On many occasions, I have been advised by professionals to drench my cows at drying off, and I have been provided with facts and figures from trials, indicating an increase in production from drenching. So I decided to look into this and I must thank my vets for their help. They gave me a huge file of all the trial data they had available. Upon reading I found the results varied from nil response to a 10 percent increase in milk production. I put this information into the context of my farming systems and decided that my limited dollars were better spent on increasing the feed grown. That’s why I decided to just feed them in the gut, as I have found well fed adult cows do not suffer from parasites or lice.

While I am here, the thorny topic of Prescription Animal Remedies (PARs) must be addressed. This topic has gauged a bit of media attention recently. Like it or not, farmers feel that we are overcharged for drugs and that vets have used drug sales to subsidise other areas of their business. The law was changed to allow prescriptions to be written as per a human doctor and filled by a third party. Your professional body has, in practice, stopped what the law allows. That is not a smart move, especially when you understand the thinking and behaviour of the Commerce Commission.

Let me again use my personal experience. First, I wish to say this is not a personal slight on the vet business that I use. I have a very good working relationship and value the advice I receive from them. But I pride myself on the fact that, on my farm, we endeavour to use our vet for advice and that prevents the need for call outs. We blood test our cows at least twice a year to check on cobalt, copper, selenium etc. We have a planned vaccination programme and we try and prevent mastitis with dry cow and management practices.

In fact, I called into the clinic in late September a year or two back to be met by one of the owners who asked if they had upset me in some way. I was surprised by this question and replied no, why? He said, it is getting to the end of the calving season and we have not been out to your place so we thought you may be using another vet service. That to me was success - because I simply had not needed to use my vet during the silly season. While I do use the vet for emergencies, I just try to avoid having too.

If I have a cow that I need expert advice on and call the vet, I know it is going to cost me close to $300. It doesn’t matter if there’s a $200 call out fee with $100 for drugs or the other way round - it is still $300. I will also buy the drugs off the vet onsite, as that is more convenient.
But emergences are only a small part of my business dealings with the vet. The biggest part is prevention and advice. For example, I teat seal all my cows and selectively dry cow the herd at drying off. It bugs me that I pay over the odds for drugs to subsidise other farmers that need emergency services. The over pricing of PARs gives other businesses the opportunity to move into the space of providing these drugs at a good profit margin. Why is it that so much drench is sold through non vet businesses? Selenium fortified drench, for example, is now available over the counter.

The current practice of many vet businesses is to demand that they alone provide services, which could be provided by good technicians or by trained farmers. This has to change. Routine vaccinations do not need to be carried out by a highly qualified vet. A leptospirosis vaccination is one such issue, while the debudding of calves is another. What a waste of skill and training to have a vet doing such routine jobs. Sure, the technician or farmer must be skilled in vaccination methods, but I can assure you, after 20 years of vaccinating sheep and as many years working with cattle, I can administer a vaccine as efficiently and safely as any new graduate.

But the pressures of commercial reality will eventually force a change in the way vet businesses operate and charge. Do you want a revolution forced upon you or are you going to evolve by making changes? Because if there is one thing I am 100 percent certain of, there will continue to be changes. The agricultural industry has a history of innovation and spirit and willingness to adopt new ideas. So I ask, what does the future holds for dairy farmers and vets.

The future of dairying, as I said, looks bright. But in the meantime, farmers will continue to operate on small cash margins. We will become more focused on maintaining cash flow and profit. Vets can and should build on the trust farmers have in your professional advice. I hear vets say they work too many hours (weekends on) and the work of pregnancy diagnoses is too hard on the body. Yet when I don’t call them out over the spring period, they say they are not making enough money out of me! Well, change! Become proactive when it comes to giving farmers advice. If a farmer routinely runs into calving problems, suggest changes, perhaps suggest they use a different bull. But, most importantly, get them to analyse the cost of the problem. I now only use home selected and grown bulls for tailing up. I select them for the low birth-weight calves they produce, meaning we no longer have large calves at birth. Problem fixed.

In summary, business models must change with less reliance on ambulance call outs. You must stop the cross subsidisation from PARs to other business areas. And more communication and information will go by the internet, so you must work out how to embrace this technology for the advantage of us all. Vets will continue to be a trusted part of our team. But you must change the content and delivery of your services. The bottom line is that dairy farmers want a partnership with their vet that adds value to their business, not costs.

Vets must refocus on adding value to my business, thereby allowing me to have a good time at work - not just a long time.