Watering Fonterra's Interests

A little while ago I quoted from an excellent NZ Herald conference report of a presentation given by Fonterra about its reliance on water in New Zealand.

I took exception to what Fonterra had to say about water in New Zealand. In their presentation they said: "Our rainfall averages two metres a year, more than double the 0.8m world average....."

While that statement might be true, it is also true that an area where dairy farming is causing significant concern is South Canterbury, North Otago, and Central Otago - which is an extraordinarily dry part of our country. Here's what NZ's Met Service has to say:

The mean annual rainfall (for New Zealand) ranges from as little as 300mm in a small area of Central Otago to over 8000mm in the Southern Alps. The average for the whole country is high, but for the greater part lies between 600 and 1500mm. The ... areas with average rainfalls under 600mm are found in the South Island to the east of the main ranges, and include most of Central and North Otago, and South Canterbury.

So. For Fonterra to say that NZ has great rainfall for dairy is plain misleading.

But just how much water does it take to make a pound of butter fat, or a litre of milk? It's quite hard to find specifics to New Zealand, but there is helpful information in New Zealand Agritech's website. Some extracts here:

New Zealand is the world's largest producer of internationally-traded dairy products. Some other countries have larger national herds, but produce mostly for domestic consumption. In New Zealand 95% of milk is made into products such as milk powders, butter, cheese and casein and exported to 140 countries.

More than 13 billion litres of milk are produced annually on New Zealand's 13,500 dairy farms, containing 1.1 billion kilograms of milk solids (protein and fat).

Total export production is around 1.5 million tonnes, including 600,000 tonnes of milk powders, and 250,000 tonnes each of butter and cheese.

The export production comes from 3.5 million cows, in an average herd size of 250 cows, which are producing on average 3,700 litres in a milking season of up to 300 days, containing 315kgs of milksolids (about 180kgs of milkfat and 135kgs of protein).

While this per cow productivity may seem low to dairy farmers in North America and Europe, the New Zealand cow is almost exclusively fed on pasture and on conserved feed such as silage made from surplus pasture in the spring months....

One kilogram of milk production requires the consumption of one kilogram of dry matter by the cow. Therefore the feasibility of any feeding system is influenced by the cost of the feeds relative to the farmgate return for milk.....

New Zealand dairy farmers receive between $3.50 and $5.00 per kilogram of milksolids (24c to 40c per litre) produced for export and sold through Fonterra Co-operative Group....

An average cow must eat about 4,000kgs of dry matter (DM) to produce 300kgs-plus annually of milksolids, which is worth to the farmer between $1,050 and $1,500 annually, plus the value of the calf born. Gross milk value is therefore about 26c to 37c a kilogram DM and the cow's feed must cost, on average, much less than this to enable a profit to be made after all other costs are paid....

Dairying land is also bought and sold with valuations related to its productivity in terms of milksolids produced per hectare. When milksolids are providing a gross farmgate return of $4/kg, fully developed dairy land, including fences, roads, buildings and water rights, may be valued at $20 per kilogram, or in other words five years of gross revenue. For a 100ha (250 acre) farm running 250 cows and producing 800kg milksolids per hectare, the farm value could be $2 million.....

What was hard to find on AgriTech's site was anything related to the need for water. So I had to look a bit harder. And finally stumbled upon the guidance that is given to dairy farmers in the State of Victoria Australia - a water poor area - on how much water they need to budget for, if they want to run a dairy farm in a drought.

The United Dairy Farmers of Victoria offer this advice:

Dairy cattle do vary greatly in their daily stock water requirements depending on breed, stage of

lactation, water quality, type of feed intake and temperature. Daily water intake by dairy cows can be calculated as follows:

* Dry matter intake per day in kilograms x 6

* Plus 1 litre of water / litres of milk produced daily

* Plus additional allowances for extremes of weather

For example:

* Assume a dry matter feed intake of 18kg, multiply by 6 = 108 litres of water

* If the cow is producing 20 litres of milk = 20 litres of water

* on a moderate temperature day in summer then no additional allowance for extremes

* Therefore, water intake could be about 128 litres / cow / day.

As a general rule of thumb, dairy cattle drink somewhere in the range of 120 ñ 150 litres of water per day when producing about 20 litres of milk but this figure could increase by as much as 80% on a hot 35ºC+ summer day.

For example a 300 cow herd could easily consume 300 x 130 litres or 39,000litres of water daily but this figure could rise to more than 66,000 litres on a hot summer day.

For a 150 day period (5 months) with cows averaging water consumption of 130 litres per day, you are looking at 5.85 million litres of water. If water from the same source is also required for the dairy and domestic use, then this figure will be significantly more.

If we assume that the State of Victoria figures apply in the dry parts of New Zealand, what does it mean?

AgriTech reckon there are 3.5 million dairy cows in New Zealand. Let's say - for argument's sake - that 500,000 of these cows are in North Otago and South Canterbury.

Let's also assume that on a dry day they are as thirsty here, as they are in Victoria. How much water would they all drink, if 300 drink 66,000 litres/day (which is 66 cubic metres each day)?

It comes to 111,000 cubic metres per day.

Here's what Otago Regional Council had to say about rivers in the area, in January 2010:

Persistent dry weather conditions in north and east Otago mean the Otago Regional Council (ORC) is introducing strict water controls in several parts of the province and encouraging irrigators to carefully manage what water is still available. ORC Director Resource Management Dr Selva Selvarajah said dry conditions since November had put many Otago river catchments at or below their minimum flow levels, which meant resource consent holders had stopped or were now rostering their water use.

“The Shag River has fallen below its minimum flow of 150 litres/second (l/sec) and water users should no longer be taking water. As of this afternoon the Shag River is at 83 l/sec at Craig Road. It is likely that some reaches of the Shag River below Dunback are dry,” Dr Selvarajah said.

The Kakanui River has reached very low levels. This afternoon the Mill Dam and McCones flow sites were recording flows of 283 l/sec and 240 l/sec respectively. The minimum flow for both these sites is 250 l/sec. Now that the level at McCones has fallen below the minimum flow all irrigation must cease and Council will enforce the 400 l/sec bounce back condition (flows must be at or above 400 l/sec before abstraction can recommence).

“Water allocation from the Kakanui is managed by the Kakanui Water Allocation Committee which has been advised of the situation in the catchment,” he said.

The Waianakarua River at Browns Pump is running at 123 l/sec and some water take consents must now cease operation. Those that don’t have minimum flow restrictions must manage their water conservatively and observe the current minimum flow given the water shortage that is taking place.

The Taieri River is at 772 l/sec at Waipiata and has fallen below the minimum flow of 1 cumec (1,000 litres/second) The Taieri at Tiroiti is running at 930 l/sec and at Outram it is at 2.40 cumecs, just below the minimum flow level of 2.5 cumecs, while at Sutton it is running at 1.2 cumecs below the minimum flow of 1.25 cumecs.

Water abstraction from the Taieri River is dominated by deemed permits (mining privileges). Historically no minimum flow levels have been applied to deemed permits which expire in 2021.

Where water takes are carried out by RMA consent holders they should adhere strictly to the consent conditions. Council staff will be in the field closely monitoring irrigation in all these catchments. Any illegal irrigation found could result in enforcement action.

Council is contacting Taieri farmers and requesting they stop their water takes. If flow levels continue to decrease Council may issue lawful directions that water takes authorised by all permits, including deemed permits, must be stopped. However, typically in such consistently dry conditions cessation of all water takes will make very little difference to minimum flows.

The Rivers of relevance that I know of in North Otago - I grew up there - include the Kakanui and Waianakarua Rivers. These all flow through dry areas heavily used now for dairy farming. Using the data provided in this report, the total flows of the Waianakarua, Shag and Kakanui Rivers adds up to 83 + 283 + 123 litres/second, which equates to about 42,000 cubic metres/day.

Which puts into perspective the 110,000 cubic metres per day that 1/7th of NZ's dairy herd needs to drink per day.

Now I know this is all a bit rough, and other rivers irrigate this area, but NZ's dairy herd is growing like topsy, and it's very very thirsty. And this is at times when our rivers are least able to provide water. (I note here that downstream sections of big rivers like the Waitaki still have large flows in dry months, but there are very large areas of Otago and South Canterbury that are irrigated by the smaller rivers.)

And don't forget the dry feed that is grown alongside the diary herds in summer, to provide dry feed in winter time. Those crops need irrigating at the same time as the dairy herds need watering....

It's time this issue was seriously engaged with, and I'm not even sure that charging for every cubic metre of water used for dairy will be enough. Bit like charging for carbon and hoping that will fix climate change.

Fonterra's Unsustainable Thirst

The caption that ran with this Fonterra story: The dairy industry has a lot to smile about given New Zealand's advantages....



On Saturday June 18th, NZ Herald's Business pages carried a useful article with a set of indicators which explain why Fonterra's current activities in New Zealand are fundamentally unsustainable...

At our annual investor conference last week, one of the presentations was from Fonterra. Feedback from the 600 private client attendees was that this was one of the most interesting talks of the day....

The first point made by Jonathan Mason, Fonterra's chief financial officer, was that New Zealand is a great place for dairy farming, if not the best in the world. The key reason is simple. We have an abundance of water, which makes us great at growing grass and gives us a distinct cost advantage over many countries.

According to Water NZ, New Zealand receives the same amount of rainfall that lands on the entire Australian continent each year, despite Australia being 28 times our size. This ample rainfall underpins New Zealand's position as a low-cost producer of protein.

Our rainfall averages 2m a year, more than double the 0.8m world average.....

Now, while this might be true, the reality is that New Zealand ranges from being water rich to water poor. In fact using international metrics, the rainfall in Canterbury and Otago is low. Yet this is where Fonterra and its legions of farmers are attempting to establish these water hungry enterprises. Eere is what Environment Canterbury says on its website:

The Canterbury Plains themselves have relatively low rainfall and the normally fast-draining characteristics of the soils and rock mean large seasonal fluctuations in the soil moisture content.

Rainfall recharge is therefore critical to maintain groundwater levels and thus the supply of water in these drier areas during spring and summer.

Christchurch has an average annual rainfall of 648 millimetres (roughly half that of Auckland and Wellington). So. To talk of average rainfall in the vicinity of 2 metres a year is plain misleading.

And Otago is no better.

Met Service data says this about rainfall in New Zealand:

The mean annual rainfall ranges from as little as 300mm in a small area of Central Otago to over 8000mm in the Southern Alps. The average for the whole country is high, but for the greater part lies between 600 and 1500mm. The only areas with average rainfalls under 600mm are found in the South Island to the east of the main ranges, and include most of Central and North Otago, and South Canterbury.

These are the very driest parts of New Zealand. Otago and South Canterbury - but these are just the areas that are being targetted for conversion to dairy in what amounts to one of the most damaging tragedies of the commons that New Zealand has ever faced. And it is supported by Central Government.

The Herald article continues:

This level of rainfall has a huge bearing on our ability to provide pasture for grazing dairy cows and gives us a strong competitive advantage over other parts of the world that have to supplement their stock with various types of feed, which are usually grain-based. While few local dairy farmers use grain-based supplements, as much as 90 per cent of the rest of the world's dairy cows rely on this, and face its consequently higher cost structure....

Australia and some parts of South America and South Africa operate in a similar way to us, and certain areas in the United States have begun to adopt our model. However, New Zealand still offers a superior environment. We have a stable political landscape and a reputation for safe, high-quality food products in our favour, too....

You see what I mean about "Government support". 50 years ago New Zealand was wealthy because we had 70,000,000 sheep that stripped vegetation to bedrock in the high country (no more soil left, it all washed away), and Great Britain bought most of the meat while NZ benefitted from Fergusons and Vanguards and washing machines. Now it's milk fat and China buys a lot of it and we get all those plasma screens and cheap stuff to buy in the Warehouse. But does that make it alright?

A co-operative owned by 10,500 farmer shareholders, Fonterra is the world's largest exporter of milk powder, has revenue of $17 billion and operating earnings of $1 billion. It has 432 tankers across 17 depots, operates 86 plants in New Zealand and has the largest milk dryers in the world. It uses 11 New Zealand ports to send 140,000 containers each year to its millions of customers in 140 different countries.

While New Zealand only accounts for about 2 per cent of world dairy production, we export 95 per cent of this. This is in contrast with most other dairy producing nations around the world, where the vast majority is consumed domestically.

Unsurprisingly, China is a key export market, taking nearly a third of Fonterra's milk products last year.... China's growing demand for high-value agricultural products bodes well for New Zealand. The local agricultural sector, blessed as it is with high rainfall, is well placed to benefit from a China that is expected to become a major importer of food....

And so it goes, and it gets better....

In addition to the growing demand, water shortages could see China become a major food importer in future. China has only one-third of the freshwater per capita of the global average and, unfortunately, the worst water shortages often coincide with the populous northern region.... As urbanisation continues, a higher proportion of fresh water will be required for residential consumption, further limiting what is available for use in agriculture.

This good news story makes no mention of the enormous long term damage that is being done to New Zealand's waterways, rivers, and lakes. I don't know how this environmental damage stacks up alongside what happened to NZ's high country, but it is not good, and it fundamentally affects our own enjoyment of our country - let alone what's happening to fresh water ecosystems. And it is dishonest to suggest that the very areas where dairy farming is expanding have "ample water". They do not. They fall into the category of "water impoverished". And the more water that is sucked out of the ground in these parts of New Zealand to force-irrigate grass, the quicker we will kill the country's rivers.

It can't last, and it needs to change.

But in the meantime, Fonterra's bosses will make hay...

Any land-based venture is not without risk and cyclical ups and downs are to be expected. It should also be noted it does not provide specific exposure to dairy farms or the commodity milk price - rather, it is a manufacturer and marketing company of dairy products. However, the long-term growth potential for Fonterra is enormous.