When the country’s largest milk processor declared milk supply in New Zealand was “likely to decline” and remain “flat at best”, it’s fair to say it was a reality check for our nation’s dairy farmers.

I know it was for me. As a fourth-generation dairy farmer this was the call-to-action moment I’d been waiting for, having contemplated the reality for some time.

As a sector we’ve accepted and become familiar with the term “peak cow”, but “peak milk” is uncharted territory being navigated by Fonterra’s new strategy and capital structure proposal.

Why we’re in it: Digitising dairy
A family-run milking business in Mangakino is using digital tools to save time and ease stress.

Given a strong Fonterra is in every New Zealand dairy farmer’s best interest, there is a high degree of farmer engagement in the dairy giant’s recent announcements, and key questions are on the table.

What does a milk decline mean for the future of our sector? How are we going to offset this reduction to maintain farm profitability, our global competitive advantage, and the general wellbeing of the New Zealand economy?

There is no doubt in my mind that when searching for answers, the spotlight needs to be firmly placed on the quality and production efficiency of our cows.

The extent of reduction needs to be carefully managed

The three pillars in Fonterra’s new strategy could be described as a Jenga tower – without the foundation of a sustainable milk supply, the other pillars (financial stability and farmer ownership) are looking noticeably less secure.

The suggestion that a lack of future growth can increase the value of the co-op’s milk has merit, but the extent of reduction needs to be carefully managed.

There is a scale of sector infrastructure that has a sweet spot of utilisation. When more of the stainless steel has a dry surface, the impact and cost associated can be detrimental to business efficiency and ultimately destroy the bottom line – both on-farm and within the processing portfolio of the dairy giant.

Fonterra models three different scenarios for future milk production, ranging from status quo to a 19.7 per cent decline. The wide-reaching impact of a 20 per cent reduction in Fonterra’s milk pool cannot be underestimated: it will be felt by all dairy farmers.

Genetic gain to offset cow number and milk decline

One of the best ways we can offset potentially detrimental milk decline is to continue to improve the quality of New Zealand’s dairy cows and strive to make greater gains in this area.

I’ve been strongly advocating the value of good cows for decades, and it is crystal clear to me that the case for sharpening the focus on the rate of genetic gain and lifting it up as an important on-farm KPI has never been stronger.

As it stands, average-per-cow production has increased by around 5.9 kilograms of milksolids each year over the past 10 years – about 40 per cent of this is directly attributed to genetics.

Productivity gains are factored into Fonterra’s milk supply scenarios, but these gains are based on maintaining this average rate of increase in both genetic merit and per-cow productivity. I, however, strongly challenge the sights being lifted higher.

If the national gains in genetic merit increased from nine to 15 breeding worth points per year, the associated productivity gains would go a long way to counteract declining cow numbers and overall milk production.

We’ve got the tools and the data to show this is well within reach.

Tracking the speed of the economy

Genomic technology to aid earlier, more accurate identification of high-genetic-merit sires and sexed semen to generate female replacements from top cows are examples of the high-impact tools farmers are adopting to increase the rate of genetic gain in their herds.

The top 10 per cent of farms, which have greater intent and focus on herd improvement, are already achieving an 18BW increase between one age group of replacements compared to the next within their herd asset each year.

These substantial gains in genetic merit are delivering noticeable value to these farms in the form of increased production efficiency and improved environmental efficiency.

As an industry, we need to set the target to 15BW/year and collectively get after it.

I strongly believe that the solution will not be as blunt as simply chasing production per cow, as that brings its own set of challenges related to environmental and farm-system considerations.

The answer lies in greater efficiency of individual cow output from an overall reduced national herd footprint.

The key measure to define dairy cow efficiency needs to be kilograms of milksolids per kilogram of cow liveweight.

Alignment to positively impact our sector’s future

I am pleased to see increased levels of positivity and optimism among dairy farmers relating to the short to medium term, but there is a sense of nervousness when you extend the conversation out to 2030 and beyond.

Yes, the challenges of the future will be different and complex, but so too will the opportunities.

Fonterra’s renewed focus on New Zealand milk and recognition of the likely consequences of a cow population that is no longer growing is the call-to-action moment needed to drive momentum and mitigations – one of which needs to be a focused uptake of tools that will help increase the rate of genetic gain in the national dairy herd.

Livestock Improvement Corporation is committed to faster genetic improvement and focused on helping farmers optimise value from its livestock by enabling them to produce the most sustainable and efficient animals and the highest value product.

New Zealand’s largest herd improvement and milk processing co-ops having the same direction of travel will deliver tangible benefits to our sector because the sustainability of New Zealand milk is reliant on the quality and efficiency of New Zealand’s cows.

I am encouraged by the alignment between the future direction of LIC and Fonterra, and hope farmers have a sense of comfort knowing their co-ops are aware of the future and recognising the challenges but also identifying opportunities to enhance profitability, sustainability and intergenerational prosperity.

When New Zealand has strong, focused and aligned co-operatives, New Zealand dairy is strong.

– Malcolm Ellis is a fourth-generation dairy farmer and general manager of NZ Markets at Livestock Improvement Corporation, a farmer-owned agritech and herd improvement co-operative.