Mark Neal: Head of Data Science at Dairy NZ on the drop in profits and rise in expenses for dairy farmers

It's a tough time for dairy farmers with expenses up and profits down. 

An industry survey has shown a suite of challenges for dairy producers including a drop in the payout for milk solids and a reduction in herd size. 

It's caused operating profits to be down 27%. 

Mark Neal, Head of Data Science at Dairy NZ, told Mike Hosking that it's emblematic of wider economic challenges. 

He says farmers, like the rest of New Zealanders, are battling inflation and are being forced to watch costs. 

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Episode Transcript

Speaker 1 (00:01):
Now it has been the most expensive season for dairy
farmers in a decade and that has left operating profits
down twenty seven percent. This is from the Dairy New
Zealand survey that shares farmers are contending with they drop
and milk solids reduction and the stocking rates and a
list and farm expenses. Head of Data Science and Modeling
at Dairy New Zealand, Mark Neil's done all these numbers.
He's with us Mark.

Speaker 2 (00:18):
Morning, Morain and Mike, good to talk with you and
Drew too.

Speaker 1 (00:23):
Have you got a word for this? Is it arduous, difficult, troubled?
What's what's happening on the farm? And a word?

Speaker 2 (00:29):
Well, I think farmers are a bit like the rest
of us in New Zealand at the moment, really battling
with inflation and that led to lower profit margins and
so farmers have to be really cost conscious in this
in this environment.

Speaker 1 (00:45):
How rearview mirror is this given? I'm hoping that the
increase in prices is dropping. So the yes, they're increasing,
but not by as much as they have been.

Speaker 2 (00:54):
Yeah. So the economic survey that we've just released was
for the twenty two to twenty three season so that
finished twelve months ago. We've got forecasts for the most
current season where we've seen a reduction in milk price
relative previous season, again which has put pressure on margins.

(01:15):
And what we've set, what we think we've seen is
that feed prices have ease back a little bit, fertilizer
prices of ease back a little bit, and farmers have
in their budgets pulled back a little on the repairs
and maintenance. So the net effect though is for the
season just gone a further ten percent lower operating profit

(01:37):
per kilo milk solids.

Speaker 1 (01:39):
And when they are down, the whole town around them
is down right.

Speaker 2 (01:43):
Yeah, I think that's safe to say that deerries is
a very important sector for New Zealand twenty five to
thirty billion dollars of export revenue at one in four
of our export dollars. So it's important for New Zealand's
success and the success of rural communities. Well.

Speaker 1 (02:00):
As we sit here at the moment, the auctions of
late have been reasonable. The sin Lay story not a
particularly good one. Is are you optimistic for dairy as
an industry generally?

Speaker 2 (02:11):
I think so. We've got a program of work at
darien Z. That is really looking towards our international competitiveness
going forward. We need the research and development into productivity
and sustainability that helps us retain that competitiveness. So it's
a key part of our role. I think farmer sentiment

(02:32):
has improved a little over the last six months. They're
feeling a bit more in control of their businesses, even
though they're cautious with respect to the wider economy. Yeah,
I think we can have a positive view of the
future while understanding it's quite tight at the moment.

Speaker 1 (02:49):
Yeah, you say down twenty seven percent that comes from
the operating profit per hector, which is threeenty seventeen dollars.
How much should you make per hector to be able
to go tell you what, things are pretty good?

Speaker 2 (03:02):
So out of that operating profit, you have to pay
first operating profit before interest in tax, and so what
we've seen in twenty one twenty two, farmers had to
put twenty five percent of that operating profit into interest,
and then with increasing interest expense and a declining margin

(03:25):
in the year that's just finished, that's probably been closer
to two thirds of their operating profit has gone into
the interest expense. So that's probably a lot more than
farmers would like to be putting into interest, leaving a
lot less for themselves.

Speaker 1 (03:42):
It's the old story, isn't it. Good insight, make appreciate
it very much. You have a good long weekend. Appreciate
your time, Mark Neil, head of Data and Science modeling
it during New Zealand. Just for more from the mic
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