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The Irish dairy industry has been advised to think strategically about its growth by a leading figure in the New Zealand dairy industry.
Speaking at the Irish Farmers Journal Dairy Day, John Penno a director at Synlait, a company which produces infant formula, said New Zealand farmers were carrying a high level of debt as a result of rapid growth.
Penno said: “Think strategically about your [Ireland’s] growth. Don’t just grow because you’ve been frustrated for 30 years.”
Do not assume that as you grow you'll be able to maintain the same cost structure that you had been able to as an owner operator
Debt levels
The debt on New Zeland farms has increased by 25% in the last five years and approximately 50% of farms now have a debt level greater than 60% of assets. Penno said these farmers would spend the next decade “grinding down that debt”.
The average herd size in New Zealand is 400 cows. Penno said as farms expanded it became harder to manage costs.
“As we've scaled we've struggled to maintain profitability. Some farmers do it really well, some farmers have been able to do that, and maintain or even grow profit as they’ve done it.
“But on average, as farms have gotten bigger, farmers have allowed the cost structures to increase, and by definition cost structures have gotten harder to control.”
Family farms
Penno explained that as New Zealand's farms become more corporate and less family-run it was harder to adjust costs.
“Do not assume that as you grow you'll be able to maintain the same cost structure that you had been able to as an owner operator. As an owner operator you have flexibility in your system. Good farmers feel. They know when they have got to close the cheque book. They know when they’ve got to feed a bit less, or look after the pasture cover, or when the stock are looking a bit sick.
“Those are the little things that make farms really profitable and they get much, much harder as the farm grows and scales.”
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