Measuring, monitoring and analysis works well for Otago dairy farmers, Rob Tipa reports.
As fifth-generation farmers in the sensitive lower reaches of the Kakanui Valley in North Otago, James and Bridget McNally have a clear understanding of the term sustainability.
This year the couple are celebrating the 10th anniversary of the conversion of the McNally family's Quambatook farm to dairying after a versatile history as a mixed cropping, sheep and beef and dairy grazing property - and even a period when part of the farm was leased for certified organic vegetable production.
The farm was originally bought by James' maternal ancestors, the Currie family, in 1908 and is now farmed in a 50:50 equity partnership with his parents Ray and Kathrin McNally.
At the recent Otago Ballance Farm Environment Awards, the couple won the CB Norwood Distributors Ltd Agri-Business Management Award and the Waterforce Integrated Management Award for their irrigation management.
The award judges said the McNallys had "extraordinary energy, enthusiasm and vision for embracing and driving sustainability in the dairy industry".
"They make excellent management decisions through measuring, monitoring and analysis of farm performance and outstanding sustainable profitability with a focus on consistency and removal of risk factors."
The McNallys converted the farm to dairying in 2008 after James completed an agricultural business management degree at Lincoln. He then worked for several years as a technical seed and grain field rep for a service company in Marlborough and North Otago.
James says when he returned to the home farm, dairy conversion was the only option that stacked up financially. Quambatook - from an Australian aboriginal word meaning place of rest - has good soils and good natural fertility.
Conversion was a big step and they started from scratch, building a new dairy shed, installing lanes, new fencing, stock water and an irrigation system.
"When we did our conversion we were aware of our surroundings from day one. Environmental issues were less public but we were aware it would become more of an issue so we set our business up accordingly," James says.
"It was pretty much my first exposure to dairy farming, apart from a four-month stint on a dairy farm during my Lincoln studies as part of the practical training requirements.
"Some of my Lincoln friends will laugh because I always used to give them a bit of stick about being dairy farmers. I was never going to be a dairy farmer. I look back and so many of our peer group are now dairy farming."
The farm has been expanded to 360ha with the purchase of a neighbouring property in 2013 and the addition of a 54ha irrigated run-off block in September 2017.
The family started milking 450 cows on a 150ha milking platform and have expanded to 740 cows on a 230ha milking platform with an extra 80ha run-off support block that has allowed them to take wintering pressure off their home block. Next season they plan to milk 900 cows off a 280ha platform.
"We're pretty much self-contained apart from some heifer grazing which we do with a neighbour," James says.
While the availability of water for irrigation was initially a limiting factor on farm development, it is no longer an issue.
When the McNallys bought a neighbouring property, it came with an existing water right from the Kakanui River and the best way to utilise that water was to build a 125,000 cubic metres storage pond, which gives them three to four weeks of storage if the river comes under full water restrictions during a dry summer.
"Since we installed it, it has paid for itself in one year," James says.
River levels were low during summer and had some heavy water restrictions placed on it, but the farm was still able to hit its production target with a reliable water supply.
Quambatook didn't need the extra water that came available when the second stage of the North Otago Irrigation Company Scheme (NOICS) came on stream last year, but having pressurised water available from the Waitaki River at the farm gate is reassuring.
"If the rules change in future, at least we know we've got water coming from other directions," James says.
"NOICS water has future-proofed water availability in the Kakanui as well because there is always that element of uncertainty as to what regional councils will do in future in terms of minimum flows."
In 10 years since the dairy conversion, the farm has doubled in size in terms of both land area and cow numbers, without sacrificing its long-term goal of greater efficiency and lower operating costs.
"What makes our business sustainable is a strong focus on profitability in a manner that minimises our environmental footprint," James explains.
He believes their long-term goal of consistent profitability with a low environmental footprint is achievable, but that target is a balancing act that will be different for every farm.
"It's about having a really thorough understanding of the resources available on your own particular property," he says.
He believes it is up to individual farmers to figure out their long-term goals based on their own resources – economic and financial, their soils, climate and water – and having all those factors in balance.
"If you have a thorough understanding of those resources, your stocking rate, fertiliser and supplement use are governed by those factors."
He says their low intensity dairy operation probably happened "a little bit by default".
"What I thought was a sustainable business 10 years ago is different to what it is today and no doubt in 10 years time that mindset might change again.
"I guess we're living proof that you can be a profitable business with a low environmental footprint."
James says he could easily "flick the switch" and intensify the operation tomorrow by increasing his stocking rate and producing more milk.
"But it wouldn't last," he says. "Eventually regulations or something would catch up with you and you would have to make a change anyway.
"Initially, our stocking rate was dictated by our limiting factor which was water, but in hindsight that has been a positive thing. If we had had more reliable water we would have been more intensive."
He says people fall into the trap of increasing cow numbers and a more intensive stocking rate to justify paying for irrigation water and everything else that goes with that type of intensification.
For intensive farms, he believes it will be a real challenge in future to reduce stocking rates to meet the environmental limits placed on their catchments or zones within catchments.
Many dairy farms are focused on production per cow, James says, "but to me it's kind of irrelevant. It comes back to profit per hectare or operating profit".
"We are increasing cow numbers but not the intensity in terms of stocking rate," he says.
"We've had a real focus on low cost and efficiency, but you can still be profitable. We benchmark ourselves against intensive Canterbury properties and our operating profit per hectare is right up there even though we probably produce 20 per cent less milk per cow than a lot of these farms.
"Even though we have invested heavily in irrigation, you can farm sustainably and profitably without being super-intensive.
"But related to that is your environmental footprint and going forward that really is a key driver. Our aim is to be profitable with a low environmental footprint."
James has strong views about the volatility of the milk payout system and has put a proposal to Fonterra on a price smoothing mechanism that would take some of the peaks and troughs out of the industry.
He believes price swings of between $4 and $8 per kg of milksolids are unsustainable for any business trying to set a budget every year.
He says price volatility is an area in the dairy industry that doesn't get enough attention and believes there is potential for further tools to be developed and educational opportunities in conjunction with the likes of DairyNZ and other consultants.
"As farmers we're very good at controlling our costs, we can control the weather to a certain extent with irrigation and by feeding supplements," he says.
"The one major variable that we have limited control over is our income. We get a forecasted milk price, set a budget for 12 months, cross your fingers and hope for the best but it doesn't always pan out."
James believes dairy farmers need a longer-term view of three to five years to give them some certainty over their business decisions. He says the volatility of milk prices is unsustainable for farmers and has repercussions when it flows through rural communities.
"My goal is to be profitable every year," he says. "With the current swings in commodity prices, we can expect one bad year in five. For every bad year it takes another year to recover, so effectively two out of every five years you may be going backwards or sideways.
"Running the system we run, we farmed through low payout years reasonably comfortably. It still hurt at the time but we bounced out the other side a lot quicker than many other dairy farmers."
Looking ahead, James and Bridget are looking forward to a period of consolidation with their focus on farm succession and debt repayment after 10 years of major development.
As the fifth generation of his family on Quambatook, James has a strong personal connection to the property and a long-term view of setting up a sustainable farming business for future generations of his family.
"You certainly don't want to be the generation that buggers it up," he says.
"I like to be engaged and involved in farming issues. It's important to me not to sit on the sidelines and watch but actually get involved."