When Farming Is Just About Money: New Zealand’s Biggest Dairy Farmer Allows Calves to Starve to Death
September 29th, 2009If you’re outside of New Zealand, chances are that this isn’t all over your mainstream media. In New Zealand, this is a very big story.
Anytime food production is turned into an industrial process that involves commoditization and absurd commitments to international bankers, there are going to be atrocities.
Predictably, much of the outrage is directed at Allan Crafar. And yes, clearly, the guy lost the plot and his miscalculations finally resulted in… this.
In what kind of environment can something like this happen, and who’s actually benefiting from the financial arrangements that are making these large scale farms possible?
This is much bigger than Allan Crafar and a bunch of dead calves.
Dairy farming is a strategic component of New Zealand’s economy. Fonterra is the corporation that moves the milk around, makes lots of products out of it, and sells all of that stuff domestically and abroad. Fonterra is largest corporation in New Zealand and it alone is responsible for about 25% of New Zealand’s exports. Fonterra is responsible for about 40% of the global trade in dairy products.
Farmers have gone “all in” with mostly Australian and Dutch banks to borrow the huge sums of money required to establish dairy operations. The result is that ninety five percent of the milk that’s produced in New Zealand is exported. (Most of the profits earned by the banks are exported as well.)
What’s the real cost of producing this much milk on pasture?
People are jumping up and down over the dead calves in this ugly incident. Yes. That’s definitely horrible. However, look at the mouth of a river in a region where intensive dairying is underway. See that brown water? That’s the dirt washing out to sea. Too many animals. Not enough trees (cleared to make cow pastures). Lots of rain. All of this adds up to soil erosion.
In New Zealand, we’re proud of the fact that animals are raised on pasture, but most people don’t stop to think about what it takes to grow all of that grass.
HAHA. Nuts.
Now, why not just back it off a bit, run fewer animals over larger areas, etc.? Why are such high levels of intensity required for agricultural production in New Zealand?
Remember the part above about absurd commitments to international bankers?
I need to be VERY careful about what I say here because New Zealand is a village, and somebody’s auntie will know someone who will know someone, but let’s just say that I know some dairy farmers. When I learned what these people were paying in interest to the bank on a weekly basis, I took a step back in disbelief and my jaw hung slack. If a farmer has taken out a loan to buy a dairy farm, that guy is now engaged in a white knuckle death match between everything that happens on the farm, good and bad, and the bank.
Price of milk solids down?
“Pay me,” says the bank.
Fertilizer price triples in two years?
“Pay me,” says the bank.
Price of diesel fuel keeping farmers awake at night?
“Pay me,” says the bank.
Etc. It goes on and on, and on and on.
Obviously, farmers wouldn’t be doing it if it wasn’t worth it, and when times are good, that’s fine, but… what happens when the situation tightens up?
There is no government teat in New Zealand for farmers. There are no subsidies at all. New Zealand plays by free trade standards that few other countries abide by. New Zealand is the only country in the developed world that has totally dismantled farm subsidies. (I think farm subsidies are very bad, but I also think that very large scale farming is very bad.) The point is: At the end of the day, either a farmer can make his loan payments, or he can’t.
Eventually, in the process of going for broke, something usually breaks. In this particular case, there was a pile of calf carcasses on New Zealand television in prime time. There might be international economic implications for New Zealand because of this. However, the maximum-extraction-to-pay-interest-to-bankers reality that’s driving this kind of thing won’t come up.
People, in general, don’t want to hear about it. They’re too busy trying to come up with interest payments.
Via: Interest New Zealand [WARNING: Graphic images and video.]:
New Zealand’s biggest privately held dairying operation allowed dozens of calves on one of its massive farms on North Island’s central plateau to slowly dehydrate to death earlier this month, triggering a MAF investigation but no prosecution.
thanks for your comments, Kevin.
i have plenty of thoughts about this too, but maybe later in the day. in the meantime, this is how i ended my comment on the original thread at interest.co.nz, who broke the story:
“fonterra and MAF and the moneylenders are all as culpable as this fake farmer. the animals and rivers suffer the consequences of unrestrained greed”.
I had no intention of writing as much as I did. This is a huge issue. I’m not even that close to it, but anyone who’s paying attention here should be concerned about what’s happening.
That the whole thing comes down, minus the kilotons of imported fert, give me a bit of hope—I think.
It’s all very well wanting the whole thing to come down – and there certainly would be benefits – but if the dairy industry collapses then the bottom is going to drop out of the New Zealand Economy.
A sharp crash here won’t be nice for anyone and if people start going hungry then things like concern for the environment and social niceties will be out the window.
More likely what will happen though is that a bunch of young farmers with young families will tip over, their farms will go up for mortgagee auction and at the same time there’ll be a shortage of product (because the same farmers won’t have been able to afford fertiliser, herbicides and diesel) which will cause the milk price to go up again.
This will result in the established guys who own 5 farms adding another couple to their portfolios (at firessale prices) and using the new higher milk price to pay them off.
Meanwhile the bankrupted young farmers return to their farms as miniumum-wage employees and the whole shebang gets patched up and sails merrily on untill it hits the next iceberg.
Of course we have a (theoretically) farmer friendly government in power at the moment so who knows what steps they’ll take to keep the show on the road.
see Aaron, the thing is, 25 years ago, even in traditional dairying regions (Waikato, Taranaki, Manawatu, Northland), a herd of 300 cows was a BIG herd. my relatives north of Auckland had 100 or so cows, which was not small, just average. nowadays, 300 cows on a family-run farm is considered small, while a 1,500-cow operation employing a lot of capital and labour is seen as quite ordinary. this massive shift in scale and intensity has occurred in a single farmer generation. the prices paid per hectare of land deemed viable for dairy was so high during the dairy bubble of 2001-2007 that the banks have made a killing (pun intended). Fonterra and the banks are benefitting. the huge multi-herd operations cited in the case above were rich on paper but it was all debt leveraged. if the land price drops and the milkfat price drops, they are fc-uk-ed.
and that has happened. but you suggest a dairy crash will fcuk the nz economy? but a huge proportion of the profits were never benefitting the nz economy in the first place. the bank profits were going offshore. the fertiliser is imported. along with most of the petroleum products. a lot of the boom was driven by the previous generation of family farmers selling up and cashing out. this cash, borrowed by the buyers from foreign banks was then used for luxury retirement homes, etc. ok, some farmers were using cash flows to increase capital investment and labour inputs, which had a short-term positive impact on gdp. but the whole point is that it is a bubble, it cannot last. the soil and water will be depleted, the quality of the milk will go down, etc. and then you are just left with a mountain of debt and starving animals.
Can’t argue with any of that really, I know the story well – My father in law sold the family farm 3 years back and bought a luxury house at Coopers Beach, along with some other property “investments”. (He thought I was an idiot for saying that property prices will drop. Since I’ve been proven right I haven’t told him what I thought of him buying a shop in Waipapa (big box shopping strip near Kerikeri, – Kevin will know it).
Anyway, he doesn’t like to go back and look at the farm – it was bought by the neighbour who already owned about 5 other farms and has made a big monster farm out of them. My FIL was a conventional farmer but he’s unimpressed by how badly the way the new guy looks after the land.
The kicker for me is that although my FIL has 4 daughters one of them married a guy who wants to become an organic dairy farmer (not me I hasten to add) and the farm could have stayed in the family. Instead the family will eventually inherit a hugely devalued beach house and some so-called investment property. I also hasten to add that my wife and I won’t need any inheritance to get by in years to come but it pains me to see a family farm dissapear into thin air like this – especially with the future we’re all expecting.
i know the feeling all too well, Aaron.
thanks for your insights.
I was just at the Waipapa Red Shed a couple of months ago. I don’t know when your dad bought the business, but there’s a whole new strip mall tumor growing on to the one that was already there. If you know that terrifying, American-scale shopping area in Whangarei, this new “growth” in Waipapa is a mini version of that.
Another strip of shops? Hells Bells, my father-in-law was already talking about dropping the rent so the tenant could survive. A bunch of empty shops next door won’t help.
I don’t know the Whangarei mall you mention but these ‘growths’ are appearing all round the country. There’s a magnificent one near me in Hamilton – it has the most beautiful asphalt.
Oh yeah, I went there on a weekday, mid afternoon. There were several acres of empty parking lots, and I thought that many of the shops were closed, but they were open. Some of them had turned the lights off, probably to save on electricity costs.
I thought, “Holy crap, these people bit a bull in the ass.”
More customers must go on weekends???
There was a decent clump of cars at the Warehouse, though.