November 5, 2025 • 46 mins
In this episode, Matt and Wade welcome Chris Lewis of Baker AG to explore the “sweet spot” in dairy systems and how top operators focus not just on producing more, but on converting resources more efficiently. Drawing on two decades of Dairy System Monitoring, Chris explains how benchmarking pasture, milk, and costs at 10-day intervals enables real-time planning, scenario modelling for feed shortages, and a clear view of how today’s decisions impact the season.
Chris explains that efficiency, not just high production per hectare, defines success. The discussion breaks down feed and non-feed costs per kilogram of milk solids, highlights how the margin curve favours disciplined management, while signalling the risks of pushing beyond the optimal limit. Chris highlights that the top farms, ranked by EBIT per hectare, succeed through adjustments and systems tailored to their resources. The data shows that high-performing farms can achieve greater productivity while also improving environmental outcomes.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_05 (00:14):
Welcome back to Fight of the Talk.
My name is Matt Deli, uh, andI'm running through the whole
stopping around at the moment inthe water and I'm full white
along with me.
Wait, hello yeah.
I'm pretty good at it, verygood.
So we're in the water and we'revisiting Chris Lewis from Baker
Egg.
Chris, thanks for having us.
Yeah.
SPEAKER_01 (00:32):
I'm sure a real part of the world.
SPEAKER_05 (00:33):
Yeah, it is a fantastic part.
And again, the weather puts iton for us.
SPEAKER_03 (00:37):
Wait, is this blue sky or blue light?
It looks like it's beenreasonably challenged around
here recently.
It'd be interesting to getChris's views on uh some of the
recent challenges around here.
SPEAKER_05 (00:45):
I'd try putting some white liars and say wherever we
are in the lower north line.
It looks great.
But yeah, recently we have hadsome challenges through here.
SPEAKER_01 (00:53):
Yes, yeah.
So the big windstorms have justcome through in the last week or
so, and uh many of the listenerswill have already been aware of
the fact that a lot of treesdown, power lost, cows not
milked for extended periods oftime.
Uh we just had a discussiongroup yesterday, and we probably
had one of the worst turnoutsbecause guys are just committed
to pulling up the chainsaw andtidying up.
Tidying up and getting thingsback on their feet.
(01:14):
And you know, being the rightmoment being mating time, it's
extra hard work at a busy timeof year.
SPEAKER_05 (01:20):
Yeah.
I mean, very early to say, butit's going to have an impact on
on mating performance.
Um, no early indicators as toYeah, serious risk of that.
SPEAKER_01 (01:31):
I mean, people who should be picking cows and
standing on platforms andlooking for cows coming through
in heat and and uh also caughtup with the chainsaw or whatever
else might be needed to keep thefarm actually ticking over.
So yeah.
Yeah.
SPEAKER_02 (01:44):
How significant has the disruption been in this sort
of lower north island uh aroundyou know milking and power and
that sort of thing?
Has it been patchy?
SPEAKER_01 (01:54):
Yeah, you talk talk to some farmers and Cirrus, um,
and a major disruption, and andothers say, Oh, never had the
never lost the power.
Yeah.
Um so you if it was the windchannels, and there's a good
part of New Zealand uh that getscaught with that.
And uh the if you're in wherethe wind is channeled channeled
and knocked over your powerlines, yeah, problem.
If you've been in the windshadow somewhere, you probably
(02:18):
got through unscathed, butmixed.
SPEAKER_05 (02:21):
Yeah.
Now, Chris, back to when theweather was actually fantastic
in the minute or two.
Uh, you joined us uh with ourcaravan tour and you you put on
a show for us and describingyour the farming in the sweet
spot or your sweet spot theoryis something you've put out
there in the past, and um Ithought it was a great topic to
revisit uh through the airwaves.
(02:42):
But before we get into that, Iwant to know a little bit or let
the listeners know a little bitabout um yourself and time at
BakerEgg and the Baker Eggbusiness.
SPEAKER_01 (02:51):
Sure, sure.
Okay.
Um dialed back to sort of freshout of Massa University.
I actually had a stint up inNorthland uh and spent 18 months
up there, then kind of itched togo and have a look at another
part of the country.
So I ended up with uh MAF FarmConsulting in Rotorua, uh short
OE for about two years, and thenback uh with MAF in Waipucarau
(03:15):
of all places.
And I noticed that there was atrend.
I'd gone from Northland toRotorua to Waipucarau, and then
my next opportunity turned up inthe Waiarapa, so I kept heading
south.
And my wife still asks me tothis day, are you going to keep
traveling south?
But we have we have thrown outthe anchor and we've been here
for 32 years.
I'd been with the MAF for aboutuh two or three years uh here in
(03:38):
Masterdon, and I got tapped onthe shoulder by David Baker and
Chris Garland and uh asked ifI'd be interested in joining uh
what was then Baker andAssociates, and uh is now known
as Baker AG.
Uh so I joined up uh shortlyafter that, became a partner of
the firm.
So I've been with BakerAgg now32 years.
The firm has has grown andshrunk a little and
(04:01):
consolidated, but we sort of sitsomewhere between about sort of
15 and 20 people in the firm.
We've also got an officer infielding.
Uh part of my role now is I'vetaken on the managing director
role, which puts me in aposition, nice position, I
think.
I've got half my time in thefield and half my time basically
working on the business.
SPEAKER_05 (04:21):
Yep.
Yeah.
And scope of the business, um,dairy, sheep and beef?
SPEAKER_01 (04:26):
Dairy, sheep and beef and valuation.
Pretty much um equal thirds,actually as it turns out at the
moment.
Yeah.
Um, we used to be um probablyvery big and quite strong in
sheep and beef, but the otherparts of our business and dairy
and valuation have basicallysort of caught up a bit there.
SPEAKER_02 (04:42):
Yeah.
What have uh what have been someof the uh in that 32 years, some
of the trends or the things thatyou have that that are standout
kind of changes uh in the agsector, do you think, over that
time?
SPEAKER_01 (04:55):
I look at first of all the constant.
And the constant has beeninvestment into land is real
estate.
But we've had some uh uh so uhowning land and also the the
passion to own land is is isalways been there, if you like.
Yeah.
Um uh and then the managementside has gone through different
(05:16):
evolutions.
So I've seen the small dairyfarm that um has got um, if you
don't mind, the sort of classicmum and dad family type business
running that, all right, and theevolution now of larger farms.
Uh, some of them are largefamily businesses, some of them
are the corporate businesses.
Um and the management systemsand the scale of farms has
(05:36):
changed.
And uh so to answer yourquestion, Wade, probably the
critical thing is that we'veshifted from being all about the
cow to now this the people thatare actually running and looking
after these businesses have tobe good with people.
And and probably that has beenalmost a little bit of one, an
unfortunate shift in one sense.
And animal husbandry uh and andand a growing being and pasture
(06:00):
management, all that stuff isstill sitting there, it's still
really important.
But you don't grow in thisbusiness is one of the things
I've changed unless youunderstand how to work with
people.
SPEAKER_05 (06:09):
And so have you guys pivoted?
Like, are you part of thoseconversations with the clients
now on the on the on the peoplefront?
SPEAKER_01 (06:14):
Yeah, no, good call, Matt.
We we definitely are.
It it varies a little bit fromuh uh our team members sort of
do have their focal points, ifyou like.
But inevitably, I would suggestthat probably 30% of our time is
people orientated in some formor another.
SPEAKER_05 (06:29):
Wow, that's a big jump.
Um, and your team here inWairobi, how big are we now?
SPEAKER_01 (06:35):
Okay, so uh there's 10 of us based actually out of
the.
SPEAKER_05 (06:39):
I could get you into trouble.
We won't ask you to name thewhole thing.
That would be helpful.
SPEAKER_01 (06:45):
So 10 of us based here in in Master and six are
based out of the field inoffice.
Yeah.
SPEAKER_05 (06:50):
And uh product of your work is DSM as well.
So can you tell us all thelisteners a little bit about
that?
Because it'll lead into thesweet spot.
SPEAKER_01 (07:00):
Okay.
So Derry Derry System Monitoringor DSM has has been started with
a discussion group here in SouthWairapa.
And the and the group said in inum we can sort of talk about uh
another organization here, Ithink, who was doing some good
things at the time in Red Sky,and they were challenging people
about Winter Lact, and they werechallenging people about how
(07:21):
much you can feed a cow.
And and we started to wake up tothe fact that uh a cow uh it
wasn't just 2.2 cows to thehectare and a cow doing sort of
320 kilograms of milk solids.
We got challenged and we gothold on, you know, this could be
quite different.
And so we started to get to apoint where farms weren't
(07:41):
necessarily all looking thesame, they had different systems
that they were engaging inchasing.
And and so the discussion groupcame to me and said, Hey, how do
we know what what is working inour farm system?
And so I said, Well, why don'twe effectively do a
benchmarking?
Um, and so we can then look andwe we said, well, it wasn't just
(08:04):
sort of doing one at the end ofthe year.
They wanted to do a benchmarkingsystem that could tell in real
time what was going on duringthe course of the season.
So the discussion groupeffectively all agreed to pile
their figures in.
I had the job of once a monthanalysing them, got an old
spreadsheet, analyzed out thenumbers, banged out a report at
the end of each month.
Uh, and what I came to realizeat that stage that a spreadsheet
(08:26):
wasn't necessarily the bestplace to handle all of this
data, and it was doing my headin.
And so what we did is got somesmarts around a program that was
called Utda.
Um, and and UDA can stillactually do this, but we then
transformed to a program calledFarmax.
Um, so we we packed up Farmaxand found that that was a great
repository for holding data.
We still actually had it by thatstage, we built an online
(08:49):
system.
Uh, Jeremy Savage and and uh AshBurton had joined forces with me
on this, and we built basicallya cloud-based system, which was
a uh once you had the analyzeddata, you then actually had to
put it in a place that could bereported and understood.
Um, all the way along withFarmax, while we were doing this
for a few years, Farmax werelooking over our shoulders and
said, that looks like quite acool idea.
(09:11):
Why don't you let us pick it upand run with it?
So, long story short, thePharmax have picked up dairy
system monitoring and run withit.
Uh, but I get on with the theservicing of my clients by being
able to give them a monthlycapture of their data, and it's
in season, it's real time, it'stalking about what's happening.
You know, we try to actually getthe data reporting back to our
(09:33):
clients within 10 days of theend of a month so that they've
got a real-time report sittingin front of them and they can
see their individualperformance.
The beauty of having Pharmacs isthat you've actually got a plan
and you can report against plan,and then I can look at my peers
and I can say, Well, hold on,how are they doing against me as
well?
So I uh my best analogy of of aof dairy system monitoring is
(09:57):
it's a multi-tool.
It's it's it's actually does anumber of things, and our
clients have grown over the overthe years.
We've been doing this for over20 years now.
Uh and and our clients havelearned how to read the reports,
how to interpret them, and thenhow to come back and challenge
us when they say, Right, I'mseeing this.
What do you think, Chris?
Where do I go now?
SPEAKER_02 (10:17):
You know, so so how granular do you go with uh with
that benchmarking and reporting?
You know, like what are the whatare the key sort of numbers that
are firing back to to clients?
SPEAKER_01 (10:28):
Yeah, so uh from a granular perspective, yep, it's
10 daily.
So we've actually down to 10daily increments for pasture
covers and milk production andall that sort of thing.
So we're getting that.
And then what comes back to thefarmers then is we uh giving
insights.
Um they they'll know the datathat they've given us, right?
(10:49):
But we're giving insights thisis where it's taking you.
Right.
So we've got the FarmAx plan andit's got a forecasting tool.
So oh, my pasture cover'sdropped.
Uh I'm I haven't got as muchsolderage sitting in the stack
as I thought I'd have, or whatam I going to do next?
And we've got the model sittingthere, and we can see if I take
on this strategy, this is whereit's taking me for the rest of
the season.
SPEAKER_02 (11:10):
So the model's built for on a farm by farm, and then
essentially they can benchmarkagainst the model, and they can
benchmark against their peers.
SPEAKER_01 (11:20):
Got it in one got it in one.
Yep.
SPEAKER_05 (11:22):
Beautiful.
Talked about the 10 days and notto do you out of a job with uh
AI, which would be impossible,Chris, to know your
capabilities.
But and the if um, I suppose theaspect of real-time data is are
we likely to speed thatreturner?
And is that changing for you?
SPEAKER_01 (11:43):
Yeah, yeah.
Easy answer to this, yes.
And I and I look bring it on.
Um, we've talked about trying tominimize double entry of data so
that there's can be ideally asmuch as possible a single
repository so data's held.
And if we can fill thatrepository quicker, you know,
like for example, we're justwaiting to be able to press the
(12:04):
button and pharmacs will bepopulated with milk from uh any
of the processing companies, allright.
So we'll be able to have thatmilk populated at at any time.
The farmer's pasture coverinformation can actually be
populated relatively quickly.
So, and stock numbers and thatsort of thing, this is just
going to this of evolution uh isgonna keep going.
(12:24):
And the short answer is yes,time.
This that's what technology isdoing in this particular case is
it's really shortening the timeframes up.
Yeah.
SPEAKER_05 (12:31):
For the listeners, you can see Chris like getting
excited.
SPEAKER_03 (12:34):
He's not concerned, he's excited about getting
excited with tech.
SPEAKER_05 (12:38):
Yeah, they're brilliant.
Um, just on the before we divein, the into the sweet spot.
The last 20 years, because Imean that some of that's
probably refined yourunderstanding of the sweet spot,
but are are there trends in thisbenchmarking and what what's
some high-level stuff that youcan you've probably picked up
on?
SPEAKER_01 (12:57):
Yeah.
Um it's nice just to be you'remapping progress, all right.
So we're seeing definitelyseeing trends in higher per cal
performance.
Uh we're seeing uh farmers arewaking up to when we start
talking about efficiencies andthat sort of thing.
I mean, I just dropped this onein quickly because I love it.
(13:18):
Is that before somebody getsinto benchmarking, all right, uh
um, 80% of farmers think they'rein the top 20%, right?
Okay.
Yeah.
And then we go and roll thisdata out in front of people and
we go, hold on, maybe you're notin the top 20%, you know, or or
if you are, you know, we we wedon't go without finding
(13:40):
opportunities within within thebusiness and that sort of thing.
So what we're finding is thateven our best farms still have
gaps or holes sitting in theirsystem somewhere.
Yeah.
Um, and and so there's been anevolution of my thinking,
there's been an evolution of theclient's thinking over time.
We've seen increases inproductivity, but we're also
(14:00):
mapping drivers of profitabilitybecause we've got that financial
function as well.
We're not just mapping thephysical, we're also mapping the
financial.
And we're seeing every year weseem to just take another step
forward in crystallizing what'sdriving um profitable
performance on farms.
SPEAKER_02 (14:18):
Um is it largely limited to physical and
financial, or does it pick upany elements of say
environmental or people, or someof those metrics can be a little
bit more tricky to uh tocapture?
SPEAKER_01 (14:32):
A number of good metrics there that are really
worth keeping in on.
Um, one that I've been enjoyingwatching evolution on uh is milk
solids the full-time equivalent.
So we actually map that in DSM,for example.
So we're seeing productivityrelative to people, and we
flatlined for a long period oftime, and now we seem to be
picking up and improving in thatspace.
(14:52):
So, yeah, we do map other otherindices.
We can uh watch uh things likelivestock losses and those sorts
of things that are going on.
So um fiscal financial iron theother one you said was
environmental, yeah, and and andwe can talk about um
particularly what has beeninteresting in recent years is
the greenhouse gas.
Yeah, it's been a conversationstarter, no silver bullets yet,
(15:16):
but yeah, yeah, we can see somesome trends, and we can
certainly see, for example, I'veseen there's a lot of work just
come out recently, and we'veseen it in our data as well,
where a high performance farmdoesn't have to necessarily have
a high environmental footprint.
SPEAKER_04 (15:27):
Yeah.
SPEAKER_01 (15:28):
And we can watch we can see that and we can talk to
that now.
We've got that information atour fingertips.
SPEAKER_02 (15:32):
Yeah.
And that would support some ofthe trends we're hearing about
at a at a at a broader nationaluh and company level with some
of the some of the trends thatare coming through there.
Just can we back to your uhpeople one before we move into
the the the sort of the sweetspot discussion?
Is um the people productivityand the change recently, is that
a is that a tech-driven changeor is it uh you know, is it an
(15:56):
you know investment ininfrastructure or is what what
what underpins that?
SPEAKER_01 (15:59):
It's not been entirely tech driven.
I think it became there wasprobably a bit of an evolution
in awareness that we um we wentthrough a period where we tr had
to change our terms andconditions for people working on
dairy farms.
All right, and we lost someproductivity while we went
through that evolution.
We seem to have stabilized a bitnow where uh people are normally
(16:23):
sort of getting at least somesort of uh the time off when I
when we first started wasprobably might have been a
weekend off a month.
And now we're sort of seeing alot more people working with uh
rosters that sort of give uhthree to four days a fortnight
off.
Um that sort of thing.
So uh as time off was allowed,as terms and conditions
(16:44):
improved, productivity actuallystalled.
Now what we're seeing is thatthat that sort of those rosters
are steadied off a little bit,productivity is improving.
So productivity versus manpoweris or people power is actually
improving or the efficiencymeasure is improving.
So we're seeing some of that.
Yeah, but but technology now,we're we're just on the cusp of
seeing what the collars, forexample, are going to do for us.
(17:05):
But could we put our finger onit and report that there's
definitely been an outcomes, notin our data yet?
Yeah, but we've just this yearstarted we're we're mapping our
collar farms to see what goeson.
SPEAKER_02 (17:17):
It's kind of it's in its infancy, if you like, uh to
see that that change going on,yeah.
SPEAKER_05 (17:22):
Right.
The sweet spot, Chris.
When you're presented so well uhand you've put in publications
as well, you uh you're aided bygraphs and and the ability
through this forum, and we'renot videoing this, um, are you
able to kind of give us a arounded definition of of what
the sweet spot is or what you'reachieving in in that?
SPEAKER_01 (17:45):
Yeah.
Hey, look, we've all been arounddiscussion groups for a long
time, and for decades, farmershave talked to, oh yeah, I'm
looking, I'm gonna get mybusiness into the sweet spot.
And yet, how good have we beenat actually digging a little
deeper and saying, well, holdon, tell me, what does that
sweet spot actually look like?
How do we define it?
I had been mulling over that,and I put that alongside another
(18:08):
question that was commonlycoming at me, which was saying,
Well, the people that are in thewe do a sort of a top five
farms, we average the top fivefarms to understand what good
really looks like is and so wepeople say to me, the farms that
are in the top five, you know,do you get farms that are
consistently there or do theyjump in and out as you go from
year to year?
And so this is in dairy systemmonitoring.
(18:31):
And so I looked at it and Isaid, Yeah, hold on.
Yeah, we do get a bit offluctuation in that top five,
but of those top five farms,usually three of the five farms
at least have been consistentlythere.
So, what are the traits of afarm that is in the in the top
five consistently?
What is it that they are doingthat enables them to stay in
(18:52):
that spot?
And if they're in that spotconsistently, have they not
found the sweet spot?
SPEAKER_05 (19:01):
Before you go any further, um, what kind of
defines them being in that topfive?
What's the metric?
What's the metric there?
Yeah.
SPEAKER_01 (19:09):
Yeah, sorry, move past that one a bit quicker.
So top five is about EBIT orprofitability per hectare.
So if you're in the five of our,let's say we've got sort of at
the moment this year we've got50 odd farmers that are giving
us this intensive information.
So five of those 50 farmers, thetop five are profitability, they
become our top five.
And then we look underneath thatto see how they're performing in
(19:32):
the rest of the metrics, whichmight be feed cost per kilogram,
milk solids, feed conversionefficiency, milk production
relative to live weight and andum milk production per full-time
equivalent.
Um so we look at those metricsunderneath that top five, and
then we find that sometimes ourtop five aren't consistently top
five, all right, for the rest ofthose metrics.
(19:53):
Yeah.
But the farms that tend toconsistently be in that top five
year on year will usually havesome of the metrics that are
sitting under there.
They'll consistently be reallygood at those.
SPEAKER_02 (20:04):
Is it is it just as uh when you look at that metric,
is it just as simple as going,oh, they're they're they're just
the good farmers on the bestland.
Or is that too is that toosimplistic?
SPEAKER_01 (20:14):
Land is a factor.
Quality of land is a factor, butuh one of the uh if you like,
one of the findings has beenthat high production per
hectare, all right, is not adriver of the sweet spot.
Yeah, it's how good you are atusing the resources you've got.
It's the efficiency of theresources that you have, and we
(20:36):
can go through various uhphysical resources, but also
some of those that are um peopleorientated, for example, uh and
and animal-oriented resources.
It's the efficiency whichinevitably gives puts people
into that sweet spot.
And it's not it's less to dowith productivity, so it's not
who's got the most milk solidsper hectare, it's who's actually
(20:58):
doing well with the efficientconversion of the resources that
they have.
SPEAKER_02 (21:02):
So have you got some some some examples there, Chris,
that you'd that you'd kind oflean into, you know, like we in
the industry in the industry weoften talk about, you know,
homegrown feed is one example,or you know, but have you got
some some that jump to mind uhthat kind of uh you know see
farmers consistently in thatzone, if you like?
SPEAKER_01 (21:23):
Sure.
Yeah.
Um so the farmers withconsistently getting into that
or holding this in that sweetspot, um, their feed conversion
efficiency will be will be inthat in that good place.
All right.
So when we look at talk aboutfood conversion efficiency, uh
we're putting the um the thehomegrown feed in there, we're
(21:43):
putting purchased feed in thereand grazing into there.
So we add those up, and that uhwe're finding uh when we put all
of that feed resources in, thetop five farmers are
consistently very efficient attheir conversion of feed.
We would also look at so it'sthat's feed to milk, but another
interesting one is is whatthey're spending relative to
(22:07):
what they're producing.
So we've got some farmers whoare actually very average for
production, all right?
Tend to always be pretty goodperformance per cow.
That will be one of the metricsthat stands out, right?
But when we actually go and havea look at these average
performers, but they have lowcost, right?
So average performance.
I talk about having a stepchange.
(22:27):
And I'm uh hopefully I'm notgoing down a rabbit roll hole
here.
Go deep.
No, yeah, yeah, yeah.
Get stuck in.
Yeah.
All right.
But um, if if you can haveaverage production, if you've
got low cost, you've got a gap.
You've got an importantdifference between what you
produce versus what it costs youto produce that.
So low-cost structure, averageproduction can generate very
(22:48):
good results.
Okay, and very competitiveresults, compelling results.
And then you go and have a lookat some businesses that are high
performance with average cost,and they still have a gap.
Yeah.
All right.
So understanding your farmsystem type and then
understanding have I got my coststructure and enabling a gap.
(23:11):
Because if I have highproduction and high cost, what
have I got?
SPEAKER_02 (23:15):
No margin.
SPEAKER_01 (23:16):
No margin.
SPEAKER_02 (23:17):
Yeah.
I I remember seeing somethingsimilar to this and and perhaps
presented in a slightlydifferent way.
And I'd be interested in yourthoughts.
So um if we take the kind of thethe average production or, you
know, or or the lower endproduction and the low cost.
So yep, there's a margin there.
Is there is there a point whereyou go to to really maximize the
(23:40):
the opportunity you don't reallywant to be almost don't want to
be under from a production pointof view?
You know, you can only you canonly um uh maximise that margin
to a point.
You have to have a certainamount of production to to to to
achieve reasonable.
You can't erode costs or keepyour cost low enough physically
to get a decent margin.
(24:01):
Is there a is there a kind of aa point at the bottom end and
perhaps uh the same, a point atthe top end where you go go
beyond that, you know, becautious almost.
SPEAKER_01 (24:10):
Yes.
So uh I don't have my graphs infront of me, so I've got to
describe this, but it's it's ait's a curve.
It's definitely a curve.
You can be so far onto theleft-hand side of the curve, all
right, that you're not actuallygetting your best margin.
You can also be too far on theright hand side of the curve and
you go beyond getting a goodmargin.
Yeah.
All right.
So for any one season, allright, and let's put milk price
(24:32):
in as a variable here.
For any one given season, allright, you can be somewhere on
that curve, all right.
And so our our optimal guys willbe near the the top point of
that curve, whatever the indiceis that we're actually measuring
against, right?
If they go too far and push toohard, they'll drop over the
right hand side and they'llactually fall, all right.
Or if they fail to produce, allright, they'll go to the left
(24:53):
hand side and drop.
Yeah.
Right.
So, so we're actuallyidentifying people who are
actually probably consistentlysitting at at the at the top of
the curve, yeah.
All right, and conscious of I II I can push too far and fall
off, and and or I could let goand not focus on what I'm doing
and I could drop off that curve.
Yeah, yeah.
(25:14):
Yeah, yeah.
And so people get a f get a feelfor where they're at on that
curve.
And when they understand thesweet spot, presto.
Yeah.
SPEAKER_05 (25:21):
I've just circled risk, and I I don't know whether
is someone's appetite, does thatput them one side of the ledger
or the other?
Like, is it is that the one ofthe differences between, you
know, yeah, average low cost andnot and high and high cost?
SPEAKER_01 (25:36):
These guys are gonna see me get all excited all over
again.
The handle we go on there.
Yeah.
Um, so we see um the guys thathey, look, not everybody's
motivated by profit per hectare.
I mean, that that's our keymetric to understand things,
sure.
But it's not everybody'snecessarily motivated by that.
So we see people who get reallyfocused on per cow or per
(25:58):
hectare production.
And and and yeah, they they canum be watching that, all right,
and and losing sight of well, inmy view, losing sight of where
their profitability is.
Yeah, yeah.
SPEAKER_02 (26:12):
Almost trading off some profit profit potentially.
SPEAKER_01 (26:15):
Correct.
Yeah.
Yeah, because that's that's mypursuit.
Yeah, you know, I want to see ifI can do 500 kilograms of milk
soda a cow with my farm system.
Yeah, you know, and that that tome is success.
That's that's that and that'sthat's great.
So then what's the pathway?
I can say, well, cool, what'sthe pathway towards achieving
that?
SPEAKER_04 (26:31):
Yeah.
SPEAKER_01 (26:32):
You might not land in our um sweet spot by choosing
that.
So we do see people pushing forwhat their passions are, yeah,
and it doesn't necessarily landthem in the sweet spot.
And that that could still becool, that could be absolutely
fine.
SPEAKER_02 (26:47):
Yeah.
Yeah.
Um, I want to come back a littlebit to a point that we probably
started to delve into.
And I don't know whether you seeanything in your numbers around
margin.
Is there a, you know,essentially the um, you know,
the the the uh the the profit umdivided by the the revenue, the
(27:08):
gross revenue if you like?
You know, is there a, you know,if you had if you had 10 or 12
or 15% margins, that would beprobably considered pretty
pretty risky.
Um, do you see any trends uh inyour data around where a kind of
a good margin over the long runsits?
Is it a 30%, 40% margin?
Is that kind of number realisticover the long run?
(27:30):
Or yeah, as I say, I might beasking a question that's outside
of the data, Chris.
I don't know.
SPEAKER_01 (27:35):
Yeah, um if we took a take a look at operating cost,
um, so milk revenue minusoperating cost, we sat for quite
a while where$2.50,$3 kilogrammilk solids of operating margin
was uh good.
Yep.
You know, uh just uh obviouslywith the$10 or thereabouts milk
price, we're sort of seeingmargins around$3.50 to$4.
(27:58):
Yeah.
Okay.
So uh you so the margins, ifwe're sort of talking to the
margins, we we we see seeshifts, and but we understand
what good looks like in terms ofwhat you're making relative to
um your production, what youroperating margin is.
Yeah, the risk is that is itstarts you start chasing that
too hard, you'll start chasingyourself over to the right hand
(28:19):
side of the curve and you'llfall off.
Um so looking at margin, um inas I just described it, you're
you're you're looking at milkprice.
Yeah, what we're finding for oursweet spot people is you take
the milk price out of theequation.
Don't look at milk price for asecond.
Look at what am I spending on,and I divide it into two places.
(28:41):
So try and keep this simple, butI put it into feed, so these
those things that are related tofeed, uh, nitrogen, purchased
feed, homegrown silages, thosesorts of costs there, grazing,
definitely in there.
Yep.
Um, so we put those into thefeed feed corner, and then on
the other side of the equation,we have non-feed, all right?
And then we look at what are weproducing relative to our spend.
(29:05):
All right.
So I I end up with a feed costper kilogram of milk solids.
So it's got nothing to do withprice.
It's got nothing, milk price,it's got nothing to do with milk
price.
It's what am I spending on feedand what am I producing?
And then to make up the otherhalf of the equation, what am I
spending on non-feed?
All right, repairs andmaintenance, animal health,
vehicles vehicle.
And that goes into non-feed.
(29:26):
When I actually then dividethose two and look at them, I
can now isolate myself away frommilk price and I can look at
efficiency.
So am I using my investment intofeed well?
Is my non-feed cost, which couldbe about how well I'm
maintaining my farm and spendingin those sorts of areas or
maintaining my animal, how whatam I spending there and is it
(29:47):
efficient?
Now I have an ability to acrossall different system types, put
everybody on the same graph, andI can analyze them.
Are you using your resourceswell?
It's not how big you are, it'snot how big the milk price is,
it's how well am I.
Performing relative to theresources that I've actually got
available to me?
How well, how much am I spendingversus what I'm producing?
SPEAKER_02 (30:07):
Yeah.
And is that a is that a kind ofa metric that speaks, also
speaks to the kind of thedilution of fixed costs?
You know, we often hear, youknow, put more feed in, produce
more, and it dilutes the thefixed costs.
Is that what you're describing away of kind of ascertaining
that?
SPEAKER_01 (30:26):
I see dilution work.
And the interesting thing is Isee dilution work really well
when we get a high milk price.
SPEAKER_04 (30:31):
Yeah.
SPEAKER_01 (30:32):
I see dilution working not so well, all right,
when when milk price starts tofall.
All right.
So I start to see those sorts ofthings pop out, if you like.
Yeah.
But dilution is definitely, youcan see where dilution is
working for people.
All right.
So their feed cost might lookhigh, so it pops out on my graph
as being off to one side, buttheir non-feed costs have come
(30:55):
down.
So if your feed cost has poppedout a little bit, but your
non-feed costs have come down,you could still be on a bit of a
winner.
All right.
And vice versa applies as well.
Where we uh come from a jumpfrom a very high height is when
we see with people with highfeed costs and high non-feed
costs, and you've got nodilution, that story's not
working for you.
SPEAKER_02 (31:14):
Yeah, yeah, yeah.
And I and I think you touched onit earlier on, sorry, Matt,
about those uh some of those topfarmers and that that it's
consistency as well.
You know, that you're lookingfor that uh repeatable that
repeatability over the medium tolong.
SPEAKER_01 (31:29):
What does consistency look like?
Yeah, and it's somebody that isactually not there in that that
top five for one year, they'rein that top five consistently,
and and their business is theworld is moving around them, the
milk price is shifting up anddown, the season's moving about,
they grow grass, they don't growgrass, and yet they hold in that
nice little spot that we'vebasically identified as the cost
(31:53):
structures and theirefficiencies sit consistently
and they hold in that space, andthat's what our sweet spot
farmers do.
They have a system type thatmatches their farm, their
circumstances, their theirattitude towards investment on
farm and their systems and allthat sort of thing, and they
just hold and the world spinsaround them and they don't get
bounced around.
SPEAKER_05 (32:13):
For the bouncing balls outside of them.
SPEAKER_01 (32:15):
Yeah.
SPEAKER_05 (32:16):
Is it normally like is there a trend always with the
the bounce, or is it differentstrokes for different folks?
SPEAKER_01 (32:25):
I I even had a real fancy graph that actually showed
the bouncing ball effect, iswhat happens is things like milk
price changed, and you could seefarm systems shift around.
Um so we see uh the farms thatare at risk of having higher
cost structures um who arechasing, who go chasing milk
price, we see those farms shiftbig time up and down, right?
(32:49):
So that they as they go from oneyear to the next, their uh eBit
bounces and moves around quite alot.
We then see the farms thatprobably aren't in the sweet
spot, their cost structures arerelatively high, but their farm
system type is very simple.
Um, and they're not changing thefarm system a great deal.
They get moved around less, allright.
(33:11):
So they're not in the sweetspot, they're not actually our
high profit guys, but they'rebouncing around less.
So if you like the left-handside of the curve where you're
passive uh and you have a simplesystem, you've you've got less
fluctuation.
You haven't got the potential,you're not capturing the
opportunity, but you've got lessfluctuation compared with the
farms on the right hand side,all right, where they actually
then start really chasing thingshard and and they will launch
(33:34):
one year into literally intospace uh and have fabulous uh
eBits per hectare.
And then the next year when themilk price drops, they become
exposed and and they're notperforming any better than the
person that's doing 50% lessmilk solids per hectare.
SPEAKER_06 (33:50):
Yeah.
SPEAKER_05 (33:50):
Is there a a line between um the dilution and
complacency then?
The reason I say that is that inhigher payout years we seem to
see a lot of imported feed andall sorts of shall I say goodies
start to come out of the uh thewoodwork and get thrown in.
(34:11):
And yes, it might look good withyour dilution, but is yeah, is
there complacency in that spendtoo?
SPEAKER_01 (34:18):
There is definitely a risk of complacency.
So you you you you get drawninto it and then you've got to
work out is this really abuilt-in part of my farm system
that's going to stay there?
If the answer's yes, then youride the tide with what you've
chosen to do.
If you're complacent, you're notthinking about it, and the tide
drops, and you and then youthink, oh, I'm not making any
(34:39):
money, or I got caught out.
You if you choose to intensify,you choose to lift your system,
you've also got to work out am Igoing to be light on my feet and
move around, or am I going toride the tide and accept the ups
and downs?
If you're not consciouslythinking about that, you could
find yourself running out ofwater to swim in.
SPEAKER_02 (34:58):
All that speaks to risk and risk management,
doesn't it?
You know, in terms of with thewith those systems with maybe
slightly smaller margins and,you know, being affected by by
milk price.
It's just a risk management.
So to take that a little bitfurther, do those do you see any
differences in the riskmanagement strategies with
(35:18):
farmers that are in the sweetspot?
Are they doing anythingdifferent in in that space to
try and manage or mitigate risk?
I uh one example I think of isthings like, you know, um uh
milk price um hedging orcontracting feed and trying to
fix feed prices and doing thosekinds of things um as a couple
(35:39):
of examples.
Is there is that is that common?
SPEAKER_01 (35:42):
Um I wouldn't I couldn't draw a correlation
between our sweet spot oroptimal or top five farmers and
their risk management.
I I think they've inherentlybuilt a system though.
Why does that why does thatsystem stand constant when the
world gets pushed around aroundthem?
And I think that they theyactually know the ebb and flow
(36:03):
of their business and they knowinherently they've built that
system around what's optimal.
If I'm growing 12 tonne ofpasture, what does my farm
system need to look like?
If I'm growing 18 tonnes ofpasture, what does my farm
system need to look like?
They know what it is to run inthat space in that environment,
they know what resources theyneed to put in, they know how to
respond when the world changesaround them.
SPEAKER_02 (36:22):
Yeah.
SPEAKER_01 (36:22):
Um, I think they're inherently good.
I think it describes apersonality or a characteristic
of those people is that theyinherently know and they're it's
a time thing.
They're quicker to respond andmitigate if the world's shifting
around them.
SPEAKER_02 (36:36):
Yeah.
So is that so to speak to that?
Is that a a a bit more of adisciplined approach in terms of
trying to think of a word thatdescribes that?
Is that I love that.
SPEAKER_01 (36:44):
I'm gonna steal that one way, don't you?
Disciplined, that is exactly it.
Yeah, they they have a very evenif they wouldn't consider
themselves as a disciplined orum as you know, a systemized
person, they will still actuallyhave that discipline to know how
to respond as as the worldchanges around them.
SPEAKER_05 (37:01):
Yeah, yeah.
Chris, you mentioned increasingmargins, and it's it's somewhere
where I wanted to go around thisum the Fonterra um brand sales.
And um, you've done some recentuh survey work on on where
people might spend some of that.
So we've got that happening.
(37:22):
You've talked about someincreasing margins.
What is this environment gonnadrive farmers to do?
SPEAKER_01 (37:30):
Yeah.
Um, I'll start with the uh thelittle we've we just got
curious.
So we did a little survey.
Um, it's not gonna be one youhang your hat on because we only
had 28 respondents, but we wesurveyed 28 uh Frontera
shareholders, uh farmingshareholders, and said, where
are you gonna spend your money?
And 75% were gonna put theirmoney into debt reduction.
(37:54):
So a fairly conservativeconventional approach.
The we saw in some of them theydescribed when we went on a bit
dig a bit further and dug a bitdeeper, they talked about um
that was step one, and it wasabout creating some dry powder,
creating some opportunity withintheir business, reduce debt, and
then go for something afterthat.
(38:14):
I'll come to the second part ofyour question, Matt, which is uh
so where does that capitalgoing?
Where are these increasedmargins going?
They're going into land.
I'll push it out of the boat alittle bit further here, rather
cynically.
So I I think unfortunately NewZealand farmers can be a bit
like lemmings.
All right.
Property and the opportunity toacquire land and that sort of
(38:35):
thing is just uh is that they'llthey'll capitalise these returns
into land prices.
So uh I think this the smarterones may do that, but they'll be
they might bide their timing asto what they do and when they do
it.
But we can't help but sort ofsee some inflation of land
prices with this cash that'sflowing around at the moment.
(38:55):
But we did also ask the questiona bit where we said, well, if
your first choice is to pay downdebt, would you still spend some
money in another place?
All right.
And then we got some interestingthings around um succession, uh,
about uh technology adoption,about off-farm investment, um,
and and buying the batch orsomething like that.
So, you know, at a real highlevel, 75% of the money is going
(39:19):
to go into debt reduction, butthat may then play out into land
purchase.
25% of that money is going to gointo other places or free up
other opportunities, whetherit's on farm or off.
SPEAKER_05 (39:31):
Which I reckon's probably got a sparkle in your
eye for that 25%, becausethere's some fun, I shouldn't
say fun to be had, but but youknow, there could be some cool
things that happen on farm withthat, whether it be
infrastructure, whether it betechnology, and opening up
another um tier of production.
SPEAKER_01 (39:49):
Or hey, look, we opened up the podcast with
talking about the windstormthat's gone through the
basically the whole country.
You know, there's there's gonnabe some guys buying some
generators and and or thinkingabout how do I actually make my
my farm more resilient.
If we've got these large weatherclimatic shifts happening, uh
how do I make my business a bitmore resilient?
You know, I I would applaudthat.
(40:10):
I'm really keen to see thesuccession thing because we've
we know that you've got to havestrong financial position for
succession to be successful.
Uh and uh, you know, like ifthere's probably been a bit of a
spark come back into the dairyindustry with family wanting to
be part of the future of thebusiness, and you need capital
to do that.
So succession is going to doextra money, the money that's
(40:33):
going to into reducing debt willenable things like that.
We even had one of ourrespondents say, This enables me
to actually exit the industry.
So I can leave the industry andin whatever shape he wanted to
be able to leave it in, take hiscapital out, um, and he was
going to use it as anopportunity to exit the
industry.
So there will be some reallycool things happen as a result
(40:54):
of this capital injection.
I just don't want to see farmerswaste it.
It's a rare opportunity.
Yeah.
Um I just I'll throw this onein.
Is uh up in the Hawke's Bay,there's a story now that goes
right back to the uh Korean Warwhen there was the wall boom.
Um and this was before my time.
(41:15):
And uh and there was a a farmingfamily out there that they they
just basically they had uh theboom is not unlike the the
capital that we've got cominginto the dairy industry at the
moment.
And they chose with a lot ofwisdom in terms of how to
reinvest and use that money ontheir farm and grow their
business.
There is now a fourth generationof that family still farming and
(41:38):
farming very successfully andpaying homage to the decisions
that were made around havingthat capital and best use of
investing that capital back intothe business for the future of
the business.
So, four generations down, youknow, decisions that are made
today, now with this capitalthat's going to be in our dairy
industry, could be influencingwhat's going to be happening.
SPEAKER_02 (41:59):
Yeah.
I I I wrote as you started umsort of talking through that
whole thing, you know, youtalked about resilience there,
and it was like strong balancesheet, strong profit, and then I
put options.
You know, it like it it givesfarmers a lot of options,
doesn't it?
If you can, if you've got good,strong balance sheet, which that
uh, you know, Fonterra paymentpotentially allows some farmers
to do.
If you've got a good, strong,profitable business, then it
(42:21):
gives you some options, whetherit's succession or farm purchase
or or expansion or whatever itis.
Um, you know, it's a it's apretty exciting space to be in.
Oh, yeah.
SPEAKER_05 (42:32):
But even the resilience of the business, say
in the future, there'll be somechallenging times.
How are we gonna ride throughthose now?
And yeah, we might see thosethat have put it in the right
place, as you say.
SPEAKER_01 (42:45):
Yeah.
So if we've been smart enough,we know that you can have too
much debt in your business.
So don't don't slip back intothat position.
Um, too much debt's gonna bethere.
Um, watch out for complacency.
Watch out that you haven'tbrought in to systems or
operations that aren'tsustainable when the milk price
is lower, or the or you don'thave the ability to flex and
(43:06):
shift with it.
So understand where where yourbusiness is currently positioned
and don't slip back into some ofthose difficult places, those
dark spots that we've been in.
SPEAKER_05 (43:16):
That that debt place is is quite a um an interesting
space at the moment because ofso much that has been paid back,
I suppose, over the last weewhile I would say.
SPEAKER_01 (43:28):
Here's an interesting situation.
We we had um so we go back aboutum uh it's probably about eight,
nine years ago, we had a debtthat was over$21 a kilogram milk
solids, average debt for NewZealand dairy farms.
Okay.
And the milk price at that timewas around six dollars, six
dollars fifteen.
Spring forward to now, right?
And we're sitting on like a tendollar milk price, and our
(43:50):
average debt level is aroundeighteen dollars a kilogram milk
solids.
Our leveraging, our positioningis great.
All right, it's just verystrong, it's back in favor of
the of the farmer mortgageholder, if you like.
Um, they've got some clout withthe bank, um, and they've got
some dry powder, if they'recareful.
And that position's gonna getstronger.
(44:10):
Uh should be stronger now, andit should stay strong if we
manage it well.
SPEAKER_02 (44:14):
Yeah, yeah, 100%.
It's not certainly looking uhthe outlook uh as we flow
through this year and you knowand into next season, still
looking very, very solid, veryexciting times ahead.
SPEAKER_05 (44:25):
To close out, Chris, have we missed anything from the
sweet spot?
SPEAKER_01 (44:29):
Yes, and I'll kind of like join the loop of it.
We are still selling acommodity.
And commodities go up and down,and the resilience, the ability
to enjoy the up, but know how tomanage the down.
So uh if you know the sweet spotor you're looking, searching for
that sweet spot, when you as youfind that, if it ain't broke,
(44:50):
don't try and fix it, becausethat's what would help you
navigate the tough times aswell.
SPEAKER_02 (44:56):
Uh I was just gonna say, uh, I think it speaks to
because we we've referenced thatsweet spot a number of times,
and you know, there'd be lots ofthere'll be a lot of listeners
going, okay, well how how how dohow do you actually even know
where where you sit rather toother to others?
And I was just I came back tothat, you know, the power of
benchmarking to challenge andimprove, the only way to find
(45:17):
out, which which your clientshave been involved in now for a
long period of time.
Yeah.
Throw your numbers in and andactually just uh you know
challenge challenge yourself toimprove based on what others are
up to.
SPEAKER_01 (45:28):
Yeah.
Of course I'd love to have morepeople on dairy system
monitoring and pharmacks wouldlove that too, because that's a
national service.
But you've also got dairy base,you know, and they that's a
fabulous tool as well.
Benchmark, and and then don't bescared of the fact that you
might not be in the top 20%.
Yeah, then think about howyou're gonna get there.
SPEAKER_05 (45:44):
Yeah.
I had that kind of questionlined up that I was thinking,
oh, we don't want to swamp Chriswith uh with a whole lot of
that.
But if people did want to reachout, we'll we'll pass on.
SPEAKER_01 (45:55):
Absolutely.
Provide the link.
There's the the article that wasin the dairy exporter in 2023
that actually started all ofthis.
That's when I crystallized theideas.
Fantastic.
SPEAKER_05 (46:07):
Oh well, Chris, thank you very much for uh
joining us on Feed for Thought.
It's been uh it's been a funyarn.
There's been a lot of energy, alot of hands wave.
It's really come through.
So thank you very much forjoining us.
And uh thanks again, Wade.
And if uh you've enjoyed this,make sure you like and
subscribe.
Um I'll get in trouble if Idon't say that.
(46:28):
So thanks again, Chris, andwe'll see you all next time.
Thanks.
Welcome back to Fight of the Talk.
My name is Matt Deli, uh, andI'm running through the whole
stopping around at the moment inthe water and I'm full white
along with me.
Wait, hello yeah.
I'm pretty good at it, verygood.
So we're in the water and we'revisiting Chris Lewis from Baker
Egg.
Chris, thanks for having us.
Yeah.
SPEAKER_01 (00:32):
I'm sure a real part of the world.
SPEAKER_05 (00:33):
Yeah, it is a fantastic part.
And again, the weather puts iton for us.
SPEAKER_03 (00:37):
Wait, is this blue sky or blue light?
It looks like it's beenreasonably challenged around
here recently.
It'd be interesting to getChris's views on uh some of the
recent challenges around here.
SPEAKER_05 (00:45):
I'd try putting some white liars and say wherever we
are in the lower north line.
It looks great.
But yeah, recently we have hadsome challenges through here.
SPEAKER_01 (00:53):
Yes, yeah.
So the big windstorms have justcome through in the last week or
so, and uh many of the listenerswill have already been aware of
the fact that a lot of treesdown, power lost, cows not
milked for extended periods oftime.
Uh we just had a discussiongroup yesterday, and we probably
had one of the worst turnoutsbecause guys are just committed
to pulling up the chainsaw andtidying up.
Tidying up and getting thingsback on their feet.
(01:14):
And you know, being the rightmoment being mating time, it's
extra hard work at a busy timeof year.
SPEAKER_05 (01:20):
Yeah.
I mean, very early to say, butit's going to have an impact on
on mating performance.
Um, no early indicators as toYeah, serious risk of that.
SPEAKER_01 (01:31):
I mean, people who should be picking cows and
standing on platforms andlooking for cows coming through
in heat and and uh also caughtup with the chainsaw or whatever
else might be needed to keep thefarm actually ticking over.
So yeah.
Yeah.
SPEAKER_02 (01:44):
How significant has the disruption been in this sort
of lower north island uh aroundyou know milking and power and
that sort of thing?
Has it been patchy?
SPEAKER_01 (01:54):
Yeah, you talk talk to some farmers and Cirrus, um,
and a major disruption, and andothers say, Oh, never had the
never lost the power.
Yeah.
Um so you if it was the windchannels, and there's a good
part of New Zealand uh that getscaught with that.
And uh the if you're in wherethe wind is channeled channeled
and knocked over your powerlines, yeah, problem.
If you've been in the windshadow somewhere, you probably
(02:18):
got through unscathed, butmixed.
SPEAKER_05 (02:21):
Yeah.
Now, Chris, back to when theweather was actually fantastic
in the minute or two.
Uh, you joined us uh with ourcaravan tour and you you put on
a show for us and describingyour the farming in the sweet
spot or your sweet spot theoryis something you've put out
there in the past, and um Ithought it was a great topic to
revisit uh through the airwaves.
(02:42):
But before we get into that, Iwant to know a little bit or let
the listeners know a little bitabout um yourself and time at
BakerEgg and the Baker Eggbusiness.
SPEAKER_01 (02:51):
Sure, sure.
Okay.
Um dialed back to sort of freshout of Massa University.
I actually had a stint up inNorthland uh and spent 18 months
up there, then kind of itched togo and have a look at another
part of the country.
So I ended up with uh MAF FarmConsulting in Rotorua, uh short
OE for about two years, and thenback uh with MAF in Waipucarau
(03:15):
of all places.
And I noticed that there was atrend.
I'd gone from Northland toRotorua to Waipucarau, and then
my next opportunity turned up inthe Waiarapa, so I kept heading
south.
And my wife still asks me tothis day, are you going to keep
traveling south?
But we have we have thrown outthe anchor and we've been here
for 32 years.
I'd been with the MAF for aboutuh two or three years uh here in
(03:38):
Masterdon, and I got tapped onthe shoulder by David Baker and
Chris Garland and uh asked ifI'd be interested in joining uh
what was then Baker andAssociates, and uh is now known
as Baker AG.
Uh so I joined up uh shortlyafter that, became a partner of
the firm.
So I've been with BakerAgg now32 years.
The firm has has grown andshrunk a little and
(04:01):
consolidated, but we sort of sitsomewhere between about sort of
15 and 20 people in the firm.
We've also got an officer infielding.
Uh part of my role now is I'vetaken on the managing director
role, which puts me in aposition, nice position, I
think.
I've got half my time in thefield and half my time basically
working on the business.
SPEAKER_05 (04:21):
Yep.
Yeah.
And scope of the business, um,dairy, sheep and beef?
SPEAKER_01 (04:26):
Dairy, sheep and beef and valuation.
Pretty much um equal thirds,actually as it turns out at the
moment.
Yeah.
Um, we used to be um probablyvery big and quite strong in
sheep and beef, but the otherparts of our business and dairy
and valuation have basicallysort of caught up a bit there.
SPEAKER_02 (04:42):
Yeah.
What have uh what have been someof the uh in that 32 years, some
of the trends or the things thatyou have that that are standout
kind of changes uh in the agsector, do you think, over that
time?
SPEAKER_01 (04:55):
I look at first of all the constant.
And the constant has beeninvestment into land is real
estate.
But we've had some uh uh so uhowning land and also the the
passion to own land is is isalways been there, if you like.
Yeah.
Um uh and then the managementside has gone through different
(05:16):
evolutions.
So I've seen the small dairyfarm that um has got um, if you
don't mind, the sort of classicmum and dad family type business
running that, all right, and theevolution now of larger farms.
Uh, some of them are largefamily businesses, some of them
are the corporate businesses.
Um and the management systemsand the scale of farms has
(05:36):
changed.
And uh so to answer yourquestion, Wade, probably the
critical thing is that we'veshifted from being all about the
cow to now this the people thatare actually running and looking
after these businesses have tobe good with people.
And and probably that has beenalmost a little bit of one, an
unfortunate shift in one sense.
And animal husbandry uh and andand a growing being and pasture
(06:00):
management, all that stuff isstill sitting there, it's still
really important.
But you don't grow in thisbusiness is one of the things
I've changed unless youunderstand how to work with
people.
SPEAKER_05 (06:09):
And so have you guys pivoted?
Like, are you part of thoseconversations with the clients
now on the on the on the peoplefront?
SPEAKER_01 (06:14):
Yeah, no, good call, Matt.
We we definitely are.
It it varies a little bit fromuh uh our team members sort of
do have their focal points, ifyou like.
But inevitably, I would suggestthat probably 30% of our time is
people orientated in some formor another.
SPEAKER_05 (06:29):
Wow, that's a big jump.
Um, and your team here inWairobi, how big are we now?
SPEAKER_01 (06:35):
Okay, so uh there's 10 of us based actually out of
the.
SPEAKER_05 (06:39):
I could get you into trouble.
We won't ask you to name thewhole thing.
That would be helpful.
SPEAKER_01 (06:45):
So 10 of us based here in in Master and six are
based out of the field inoffice.
Yeah.
SPEAKER_05 (06:50):
And uh product of your work is DSM as well.
So can you tell us all thelisteners a little bit about
that?
Because it'll lead into thesweet spot.
SPEAKER_01 (07:00):
Okay.
So Derry Derry System Monitoringor DSM has has been started with
a discussion group here in SouthWairapa.
And the and the group said in inum we can sort of talk about uh
another organization here, Ithink, who was doing some good
things at the time in Red Sky,and they were challenging people
about Winter Lact, and they werechallenging people about how
(07:21):
much you can feed a cow.
And and we started to wake up tothe fact that uh a cow uh it
wasn't just 2.2 cows to thehectare and a cow doing sort of
320 kilograms of milk solids.
We got challenged and we gothold on, you know, this could be
quite different.
And so we started to get to apoint where farms weren't
(07:41):
necessarily all looking thesame, they had different systems
that they were engaging inchasing.
And and so the discussion groupcame to me and said, Hey, how do
we know what what is working inour farm system?
And so I said, Well, why don'twe effectively do a
benchmarking?
Um, and so we can then look andwe we said, well, it wasn't just
(08:04):
sort of doing one at the end ofthe year.
They wanted to do a benchmarkingsystem that could tell in real
time what was going on duringthe course of the season.
So the discussion groupeffectively all agreed to pile
their figures in.
I had the job of once a monthanalysing them, got an old
spreadsheet, analyzed out thenumbers, banged out a report at
the end of each month.
Uh, and what I came to realizeat that stage that a spreadsheet
(08:26):
wasn't necessarily the bestplace to handle all of this
data, and it was doing my headin.
And so what we did is got somesmarts around a program that was
called Utda.
Um, and and UDA can stillactually do this, but we then
transformed to a program calledFarmax.
Um, so we we packed up Farmaxand found that that was a great
repository for holding data.
We still actually had it by thatstage, we built an online
(08:49):
system.
Uh, Jeremy Savage and and uh AshBurton had joined forces with me
on this, and we built basicallya cloud-based system, which was
a uh once you had the analyzeddata, you then actually had to
put it in a place that could bereported and understood.
Um, all the way along withFarmax, while we were doing this
for a few years, Farmax werelooking over our shoulders and
said, that looks like quite acool idea.
(09:11):
Why don't you let us pick it upand run with it?
So, long story short, thePharmax have picked up dairy
system monitoring and run withit.
Uh, but I get on with the theservicing of my clients by being
able to give them a monthlycapture of their data, and it's
in season, it's real time, it'stalking about what's happening.
You know, we try to actually getthe data reporting back to our
(09:33):
clients within 10 days of theend of a month so that they've
got a real-time report sittingin front of them and they can
see their individualperformance.
The beauty of having Pharmacs isthat you've actually got a plan
and you can report against plan,and then I can look at my peers
and I can say, Well, hold on,how are they doing against me as
well?
So I uh my best analogy of of aof dairy system monitoring is
(09:57):
it's a multi-tool.
It's it's it's actually does anumber of things, and our
clients have grown over the overthe years.
We've been doing this for over20 years now.
Uh and and our clients havelearned how to read the reports,
how to interpret them, and thenhow to come back and challenge
us when they say, Right, I'mseeing this.
What do you think, Chris?
Where do I go now?
SPEAKER_02 (10:17):
You know, so so how granular do you go with uh with
that benchmarking and reporting?
You know, like what are the whatare the key sort of numbers that
are firing back to to clients?
SPEAKER_01 (10:28):
Yeah, so uh from a granular perspective, yep, it's
10 daily.
So we've actually down to 10daily increments for pasture
covers and milk production andall that sort of thing.
So we're getting that.
And then what comes back to thefarmers then is we uh giving
insights.
Um they they'll know the datathat they've given us, right?
(10:49):
But we're giving insights thisis where it's taking you.
Right.
So we've got the FarmAx plan andit's got a forecasting tool.
So oh, my pasture cover'sdropped.
Uh I'm I haven't got as muchsolderage sitting in the stack
as I thought I'd have, or whatam I going to do next?
And we've got the model sittingthere, and we can see if I take
on this strategy, this is whereit's taking me for the rest of
the season.
SPEAKER_02 (11:10):
So the model's built for on a farm by farm, and then
essentially they can benchmarkagainst the model, and they can
benchmark against their peers.
SPEAKER_01 (11:20):
Got it in one got it in one.
Yep.
SPEAKER_05 (11:22):
Beautiful.
Talked about the 10 days and notto do you out of a job with uh
AI, which would be impossible,Chris, to know your
capabilities.
But and the if um, I suppose theaspect of real-time data is are
we likely to speed thatreturner?
And is that changing for you?
SPEAKER_01 (11:43):
Yeah, yeah.
Easy answer to this, yes.
And I and I look bring it on.
Um, we've talked about trying tominimize double entry of data so
that there's can be ideally asmuch as possible a single
repository so data's held.
And if we can fill thatrepository quicker, you know,
like for example, we're justwaiting to be able to press the
(12:04):
button and pharmacs will bepopulated with milk from uh any
of the processing companies, allright.
So we'll be able to have thatmilk populated at at any time.
The farmer's pasture coverinformation can actually be
populated relatively quickly.
So, and stock numbers and thatsort of thing, this is just
going to this of evolution uh isgonna keep going.
(12:24):
And the short answer is yes,time.
This that's what technology isdoing in this particular case is
it's really shortening the timeframes up.
Yeah.
SPEAKER_05 (12:31):
For the listeners, you can see Chris like getting
excited.
SPEAKER_03 (12:34):
He's not concerned, he's excited about getting
excited with tech.
SPEAKER_05 (12:38):
Yeah, they're brilliant.
Um, just on the before we divein, the into the sweet spot.
The last 20 years, because Imean that some of that's
probably refined yourunderstanding of the sweet spot,
but are are there trends in thisbenchmarking and what what's
some high-level stuff that youcan you've probably picked up
on?
SPEAKER_01 (12:57):
Yeah.
Um it's nice just to be you'remapping progress, all right.
So we're seeing definitelyseeing trends in higher per cal
performance.
Uh we're seeing uh farmers arewaking up to when we start
talking about efficiencies andthat sort of thing.
I mean, I just dropped this onein quickly because I love it.
(13:18):
Is that before somebody getsinto benchmarking, all right, uh
um, 80% of farmers think they'rein the top 20%, right?
Okay.
Yeah.
And then we go and roll thisdata out in front of people and
we go, hold on, maybe you're notin the top 20%, you know, or or
if you are, you know, we we wedon't go without finding
(13:40):
opportunities within within thebusiness and that sort of thing.
So what we're finding is thateven our best farms still have
gaps or holes sitting in theirsystem somewhere.
Yeah.
Um, and and so there's been anevolution of my thinking,
there's been an evolution of theclient's thinking over time.
We've seen increases inproductivity, but we're also
(14:00):
mapping drivers of profitabilitybecause we've got that financial
function as well.
We're not just mapping thephysical, we're also mapping the
financial.
And we're seeing every year weseem to just take another step
forward in crystallizing what'sdriving um profitable
performance on farms.
SPEAKER_02 (14:18):
Um is it largely limited to physical and
financial, or does it pick upany elements of say
environmental or people, or someof those metrics can be a little
bit more tricky to uh tocapture?
SPEAKER_01 (14:32):
A number of good metrics there that are really
worth keeping in on.
Um, one that I've been enjoyingwatching evolution on uh is milk
solids the full-time equivalent.
So we actually map that in DSM,for example.
So we're seeing productivityrelative to people, and we
flatlined for a long period oftime, and now we seem to be
picking up and improving in thatspace.
(14:52):
So, yeah, we do map other otherindices.
We can uh watch uh things likelivestock losses and those sorts
of things that are going on.
So um fiscal financial iron theother one you said was
environmental, yeah, and and andwe can talk about um
particularly what has beeninteresting in recent years is
the greenhouse gas.
Yeah, it's been a conversationstarter, no silver bullets yet,
(15:16):
but yeah, yeah, we can see somesome trends, and we can
certainly see, for example, I'veseen there's a lot of work just
come out recently, and we'veseen it in our data as well,
where a high performance farmdoesn't have to necessarily have
a high environmental footprint.
SPEAKER_04 (15:27):
Yeah.
SPEAKER_01 (15:28):
And we can watch we can see that and we can talk to
that now.
We've got that information atour fingertips.
SPEAKER_02 (15:32):
Yeah.
And that would support some ofthe trends we're hearing about
at a at a at a broader nationaluh and company level with some
of the some of the trends thatare coming through there.
Just can we back to your uhpeople one before we move into
the the the sort of the sweetspot discussion?
Is um the people productivityand the change recently, is that
a is that a tech-driven changeor is it uh you know, is it an
(15:56):
you know investment ininfrastructure or is what what
what underpins that?
SPEAKER_01 (15:59):
It's not been entirely tech driven.
I think it became there wasprobably a bit of an evolution
in awareness that we um we wentthrough a period where we tr had
to change our terms andconditions for people working on
dairy farms.
All right, and we lost someproductivity while we went
through that evolution.
We seem to have stabilized a bitnow where uh people are normally
(16:23):
sort of getting at least somesort of uh the time off when I
when we first started wasprobably might have been a
weekend off a month.
And now we're sort of seeing alot more people working with uh
rosters that sort of give uhthree to four days a fortnight
off.
Um that sort of thing.
So uh as time off was allowed,as terms and conditions
(16:44):
improved, productivity actuallystalled.
Now what we're seeing is thatthat that sort of those rosters
are steadied off a little bit,productivity is improving.
So productivity versus manpoweris or people power is actually
improving or the efficiencymeasure is improving.
So we're seeing some of that.
Yeah, but but technology now,we're we're just on the cusp of
seeing what the collars, forexample, are going to do for us.
(17:05):
But could we put our finger onit and report that there's
definitely been an outcomes, notin our data yet?
Yeah, but we've just this yearstarted we're we're mapping our
collar farms to see what goeson.
SPEAKER_02 (17:17):
It's kind of it's in its infancy, if you like, uh to
see that that change going on,yeah.
SPEAKER_05 (17:22):
Right.
The sweet spot, Chris.
When you're presented so well uhand you've put in publications
as well, you uh you're aided bygraphs and and the ability
through this forum, and we'renot videoing this, um, are you
able to kind of give us a arounded definition of of what
the sweet spot is or what you'reachieving in in that?
SPEAKER_01 (17:45):
Yeah.
Hey, look, we've all been arounddiscussion groups for a long
time, and for decades, farmershave talked to, oh yeah, I'm
looking, I'm gonna get mybusiness into the sweet spot.
And yet, how good have we beenat actually digging a little
deeper and saying, well, holdon, tell me, what does that
sweet spot actually look like?
How do we define it?
I had been mulling over that,and I put that alongside another
(18:08):
question that was commonlycoming at me, which was saying,
Well, the people that are in thewe do a sort of a top five
farms, we average the top fivefarms to understand what good
really looks like is and so wepeople say to me, the farms that
are in the top five, you know,do you get farms that are
consistently there or do theyjump in and out as you go from
year to year?
And so this is in dairy systemmonitoring.
(18:31):
And so I looked at it and Isaid, Yeah, hold on.
Yeah, we do get a bit offluctuation in that top five,
but of those top five farms,usually three of the five farms
at least have been consistentlythere.
So, what are the traits of afarm that is in the in the top
five consistently?
What is it that they are doingthat enables them to stay in
(18:52):
that spot?
And if they're in that spotconsistently, have they not
found the sweet spot?
SPEAKER_05 (19:01):
Before you go any further, um, what kind of
defines them being in that topfive?
What's the metric?
What's the metric there?
Yeah.
SPEAKER_01 (19:09):
Yeah, sorry, move past that one a bit quicker.
So top five is about EBIT orprofitability per hectare.
So if you're in the five of our,let's say we've got sort of at
the moment this year we've got50 odd farmers that are giving
us this intensive information.
So five of those 50 farmers, thetop five are profitability, they
become our top five.
And then we look underneath thatto see how they're performing in
(19:32):
the rest of the metrics, whichmight be feed cost per kilogram,
milk solids, feed conversionefficiency, milk production
relative to live weight and andum milk production per full-time
equivalent.
Um so we look at those metricsunderneath that top five, and
then we find that sometimes ourtop five aren't consistently top
five, all right, for the rest ofthose metrics.
(19:53):
Yeah.
But the farms that tend toconsistently be in that top five
year on year will usually havesome of the metrics that are
sitting under there.
They'll consistently be reallygood at those.
SPEAKER_02 (20:04):
Is it is it just as uh when you look at that metric,
is it just as simple as going,oh, they're they're they're just
the good farmers on the bestland.
Or is that too is that toosimplistic?
SPEAKER_01 (20:14):
Land is a factor.
Quality of land is a factor, butuh one of the uh if you like,
one of the findings has beenthat high production per
hectare, all right, is not adriver of the sweet spot.
Yeah, it's how good you are atusing the resources you've got.
It's the efficiency of theresources that you have, and we
(20:36):
can go through various uhphysical resources, but also
some of those that are um peopleorientated, for example, uh and
and animal-oriented resources.
It's the efficiency whichinevitably gives puts people
into that sweet spot.
And it's not it's less to dowith productivity, so it's not
who's got the most milk solidsper hectare, it's who's actually
(20:58):
doing well with the efficientconversion of the resources that
they have.
SPEAKER_02 (21:02):
So have you got some some some examples there, Chris,
that you'd that you'd kind oflean into, you know, like we in
the industry in the industry weoften talk about, you know,
homegrown feed is one example,or you know, but have you got
some some that jump to mind uhthat kind of uh you know see
farmers consistently in thatzone, if you like?
SPEAKER_01 (21:23):
Sure.
Yeah.
Um so the farmers withconsistently getting into that
or holding this in that sweetspot, um, their feed conversion
efficiency will be will be inthat in that good place.
All right.
So when we look at talk aboutfood conversion efficiency, uh
we're putting the um the thehomegrown feed in there, we're
(21:43):
putting purchased feed in thereand grazing into there.
So we add those up, and that uhwe're finding uh when we put all
of that feed resources in, thetop five farmers are
consistently very efficient attheir conversion of feed.
We would also look at so it'sthat's feed to milk, but another
interesting one is is whatthey're spending relative to
(22:07):
what they're producing.
So we've got some farmers whoare actually very average for
production, all right?
Tend to always be pretty goodperformance per cow.
That will be one of the metricsthat stands out, right?
But when we actually go and havea look at these average
performers, but they have lowcost, right?
So average performance.
I talk about having a stepchange.
(22:27):
And I'm uh hopefully I'm notgoing down a rabbit roll hole
here.
Go deep.
No, yeah, yeah, yeah.
Get stuck in.
Yeah.
All right.
But um, if if you can haveaverage production, if you've
got low cost, you've got a gap.
You've got an importantdifference between what you
produce versus what it costs youto produce that.
So low-cost structure, averageproduction can generate very
(22:48):
good results.
Okay, and very competitiveresults, compelling results.
And then you go and have a lookat some businesses that are high
performance with average cost,and they still have a gap.
Yeah.
All right.
So understanding your farmsystem type and then
understanding have I got my coststructure and enabling a gap.
(23:11):
Because if I have highproduction and high cost, what
have I got?
SPEAKER_02 (23:15):
No margin.
SPEAKER_01 (23:16):
No margin.
SPEAKER_02 (23:17):
Yeah.
I I remember seeing somethingsimilar to this and and perhaps
presented in a slightlydifferent way.
And I'd be interested in yourthoughts.
So um if we take the kind of thethe average production or, you
know, or or the lower endproduction and the low cost.
So yep, there's a margin there.
Is there is there a point whereyou go to to really maximize the
(23:40):
the opportunity you don't reallywant to be almost don't want to
be under from a production pointof view?
You know, you can only you canonly um uh maximise that margin
to a point.
You have to have a certainamount of production to to to to
achieve reasonable.
You can't erode costs or keepyour cost low enough physically
to get a decent margin.
(24:01):
Is there a is there a kind of aa point at the bottom end and
perhaps uh the same, a point atthe top end where you go go
beyond that, you know, becautious almost.
SPEAKER_01 (24:10):
Yes.
So uh I don't have my graphs infront of me, so I've got to
describe this, but it's it's ait's a curve.
It's definitely a curve.
You can be so far onto theleft-hand side of the curve, all
right, that you're not actuallygetting your best margin.
You can also be too far on theright hand side of the curve and
you go beyond getting a goodmargin.
Yeah.
All right.
So for any one season, allright, and let's put milk price
(24:32):
in as a variable here.
For any one given season, allright, you can be somewhere on
that curve, all right.
And so our our optimal guys willbe near the the top point of
that curve, whatever the indiceis that we're actually measuring
against, right?
If they go too far and push toohard, they'll drop over the
right hand side and they'llactually fall, all right.
Or if they fail to produce, allright, they'll go to the left
(24:53):
hand side and drop.
Yeah.
Right.
So, so we're actuallyidentifying people who are
actually probably consistentlysitting at at the at the top of
the curve, yeah.
All right, and conscious of I II I can push too far and fall
off, and and or I could let goand not focus on what I'm doing
and I could drop off that curve.
Yeah, yeah.
(25:14):
Yeah, yeah.
And so people get a f get a feelfor where they're at on that
curve.
And when they understand thesweet spot, presto.
Yeah.
SPEAKER_05 (25:21):
I've just circled risk, and I I don't know whether
is someone's appetite, does thatput them one side of the ledger
or the other?
Like, is it is that the one ofthe differences between, you
know, yeah, average low cost andnot and high and high cost?
SPEAKER_01 (25:36):
These guys are gonna see me get all excited all over
again.
The handle we go on there.
Yeah.
Um, so we see um the guys thathey, look, not everybody's
motivated by profit per hectare.
I mean, that that's our keymetric to understand things,
sure.
But it's not everybody'snecessarily motivated by that.
So we see people who get reallyfocused on per cow or per
(25:58):
hectare production.
And and and yeah, they they canum be watching that, all right,
and and losing sight of well, inmy view, losing sight of where
their profitability is.
Yeah, yeah.
SPEAKER_02 (26:12):
Almost trading off some profit profit potentially.
SPEAKER_01 (26:15):
Correct.
Yeah.
Yeah, because that's that's mypursuit.
Yeah, you know, I want to see ifI can do 500 kilograms of milk
soda a cow with my farm system.
Yeah, you know, and that that tome is success.
That's that's that and that'sthat's great.
So then what's the pathway?
I can say, well, cool, what'sthe pathway towards achieving
that?
SPEAKER_04 (26:31):
Yeah.
SPEAKER_01 (26:32):
You might not land in our um sweet spot by choosing
that.
So we do see people pushing forwhat their passions are, yeah,
and it doesn't necessarily landthem in the sweet spot.
And that that could still becool, that could be absolutely
fine.
SPEAKER_02 (26:47):
Yeah.
Yeah.
Um, I want to come back a littlebit to a point that we probably
started to delve into.
And I don't know whether you seeanything in your numbers around
margin.
Is there a, you know,essentially the um, you know,
the the the uh the the profit umdivided by the the revenue, the
(27:08):
gross revenue if you like?
You know, is there a, you know,if you had if you had 10 or 12
or 15% margins, that would beprobably considered pretty
pretty risky.
Um, do you see any trends uh inyour data around where a kind of
a good margin over the long runsits?
Is it a 30%, 40% margin?
Is that kind of number realisticover the long run?
(27:30):
Or yeah, as I say, I might beasking a question that's outside
of the data, Chris.
I don't know.
SPEAKER_01 (27:35):
Yeah, um if we took a take a look at operating cost,
um, so milk revenue minusoperating cost, we sat for quite
a while where$2.50,$3 kilogrammilk solids of operating margin
was uh good.
Yep.
You know, uh just uh obviouslywith the$10 or thereabouts milk
price, we're sort of seeingmargins around$3.50 to$4.
(27:58):
Yeah.
Okay.
So uh you so the margins, ifwe're sort of talking to the
margins, we we we see seeshifts, and but we understand
what good looks like in terms ofwhat you're making relative to
um your production, what youroperating margin is.
Yeah, the risk is that is itstarts you start chasing that
too hard, you'll start chasingyourself over to the right hand
(28:19):
side of the curve and you'llfall off.
Um so looking at margin, um inas I just described it, you're
you're you're looking at milkprice.
Yeah, what we're finding for oursweet spot people is you take
the milk price out of theequation.
Don't look at milk price for asecond.
Look at what am I spending on,and I divide it into two places.
(28:41):
So try and keep this simple, butI put it into feed, so these
those things that are related tofeed, uh, nitrogen, purchased
feed, homegrown silages, thosesorts of costs there, grazing,
definitely in there.
Yep.
Um, so we put those into thefeed feed corner, and then on
the other side of the equation,we have non-feed, all right?
And then we look at what are weproducing relative to our spend.
(29:05):
All right.
So I I end up with a feed costper kilogram of milk solids.
So it's got nothing to do withprice.
It's got nothing, milk price,it's got nothing to do with milk
price.
It's what am I spending on feedand what am I producing?
And then to make up the otherhalf of the equation, what am I
spending on non-feed?
All right, repairs andmaintenance, animal health,
vehicles vehicle.
And that goes into non-feed.
(29:26):
When I actually then dividethose two and look at them, I
can now isolate myself away frommilk price and I can look at
efficiency.
So am I using my investment intofeed well?
Is my non-feed cost, which couldbe about how well I'm
maintaining my farm and spendingin those sorts of areas or
maintaining my animal, how whatam I spending there and is it
(29:47):
efficient?
Now I have an ability to acrossall different system types, put
everybody on the same graph, andI can analyze them.
Are you using your resourceswell?
It's not how big you are, it'snot how big the milk price is,
it's how well am I.
Performing relative to theresources that I've actually got
available to me?
How well, how much am I spendingversus what I'm producing?
SPEAKER_02 (30:07):
Yeah.
And is that a is that a kind ofa metric that speaks, also
speaks to the kind of thedilution of fixed costs?
You know, we often hear, youknow, put more feed in, produce
more, and it dilutes the thefixed costs.
Is that what you're describing away of kind of ascertaining
that?
SPEAKER_01 (30:26):
I see dilution work.
And the interesting thing is Isee dilution work really well
when we get a high milk price.
SPEAKER_04 (30:31):
Yeah.
SPEAKER_01 (30:32):
I see dilution working not so well, all right,
when when milk price starts tofall.
All right.
So I start to see those sorts ofthings pop out, if you like.
Yeah.
But dilution is definitely, youcan see where dilution is
working for people.
All right.
So their feed cost might lookhigh, so it pops out on my graph
as being off to one side, buttheir non-feed costs have come
(30:55):
down.
So if your feed cost has poppedout a little bit, but your
non-feed costs have come down,you could still be on a bit of a
winner.
All right.
And vice versa applies as well.
Where we uh come from a jumpfrom a very high height is when
we see with people with highfeed costs and high non-feed
costs, and you've got nodilution, that story's not
working for you.
SPEAKER_02 (31:14):
Yeah, yeah, yeah.
And I and I think you touched onit earlier on, sorry, Matt,
about those uh some of those topfarmers and that that it's
consistency as well.
You know, that you're lookingfor that uh repeatable that
repeatability over the medium tolong.
SPEAKER_01 (31:29):
What does consistency look like?
Yeah, and it's somebody that isactually not there in that that
top five for one year, they'rein that top five consistently,
and and their business is theworld is moving around them, the
milk price is shifting up anddown, the season's moving about,
they grow grass, they don't growgrass, and yet they hold in that
nice little spot that we'vebasically identified as the cost
(31:53):
structures and theirefficiencies sit consistently
and they hold in that space, andthat's what our sweet spot
farmers do.
They have a system type thatmatches their farm, their
circumstances, their theirattitude towards investment on
farm and their systems and allthat sort of thing, and they
just hold and the world spinsaround them and they don't get
bounced around.
SPEAKER_05 (32:13):
For the bouncing balls outside of them.
SPEAKER_01 (32:15):
Yeah.
SPEAKER_05 (32:16):
Is it normally like is there a trend always with the
the bounce, or is it differentstrokes for different folks?
SPEAKER_01 (32:25):
I I even had a real fancy graph that actually showed
the bouncing ball effect, iswhat happens is things like milk
price changed, and you could seefarm systems shift around.
Um so we see uh the farms thatare at risk of having higher
cost structures um who arechasing, who go chasing milk
price, we see those farms shiftbig time up and down, right?
(32:49):
So that they as they go from oneyear to the next, their uh eBit
bounces and moves around quite alot.
We then see the farms thatprobably aren't in the sweet
spot, their cost structures arerelatively high, but their farm
system type is very simple.
Um, and they're not changing thefarm system a great deal.
They get moved around less, allright.
(33:11):
So they're not in the sweetspot, they're not actually our
high profit guys, but they'rebouncing around less.
So if you like the left-handside of the curve where you're
passive uh and you have a simplesystem, you've you've got less
fluctuation.
You haven't got the potential,you're not capturing the
opportunity, but you've got lessfluctuation compared with the
farms on the right hand side,all right, where they actually
then start really chasing thingshard and and they will launch
(33:34):
one year into literally intospace uh and have fabulous uh
eBits per hectare.
And then the next year when themilk price drops, they become
exposed and and they're notperforming any better than the
person that's doing 50% lessmilk solids per hectare.
SPEAKER_06 (33:50):
Yeah.
SPEAKER_05 (33:50):
Is there a a line between um the dilution and
complacency then?
The reason I say that is that inhigher payout years we seem to
see a lot of imported feed andall sorts of shall I say goodies
start to come out of the uh thewoodwork and get thrown in.
(34:11):
And yes, it might look good withyour dilution, but is yeah, is
there complacency in that spendtoo?
SPEAKER_01 (34:18):
There is definitely a risk of complacency.
So you you you you get drawninto it and then you've got to
work out is this really abuilt-in part of my farm system
that's going to stay there?
If the answer's yes, then youride the tide with what you've
chosen to do.
If you're complacent, you're notthinking about it, and the tide
drops, and you and then youthink, oh, I'm not making any
(34:39):
money, or I got caught out.
You if you choose to intensify,you choose to lift your system,
you've also got to work out am Igoing to be light on my feet and
move around, or am I going toride the tide and accept the ups
and downs?
If you're not consciouslythinking about that, you could
find yourself running out ofwater to swim in.
SPEAKER_02 (34:58):
All that speaks to risk and risk management,
doesn't it?
You know, in terms of with thewith those systems with maybe
slightly smaller margins and,you know, being affected by by
milk price.
It's just a risk management.
So to take that a little bitfurther, do those do you see any
differences in the riskmanagement strategies with
(35:18):
farmers that are in the sweetspot?
Are they doing anythingdifferent in in that space to
try and manage or mitigate risk?
I uh one example I think of isthings like, you know, um uh
milk price um hedging orcontracting feed and trying to
fix feed prices and doing thosekinds of things um as a couple
(35:39):
of examples.
Is there is that is that common?
SPEAKER_01 (35:42):
Um I wouldn't I couldn't draw a correlation
between our sweet spot oroptimal or top five farmers and
their risk management.
I I think they've inherentlybuilt a system though.
Why does that why does thatsystem stand constant when the
world gets pushed around aroundthem?
And I think that they theyactually know the ebb and flow
(36:03):
of their business and they knowinherently they've built that
system around what's optimal.
If I'm growing 12 tonne ofpasture, what does my farm
system need to look like?
If I'm growing 18 tonnes ofpasture, what does my farm
system need to look like?
They know what it is to run inthat space in that environment,
they know what resources theyneed to put in, they know how to
respond when the world changesaround them.
SPEAKER_02 (36:22):
Yeah.
SPEAKER_01 (36:22):
Um, I think they're inherently good.
I think it describes apersonality or a characteristic
of those people is that theyinherently know and they're it's
a time thing.
They're quicker to respond andmitigate if the world's shifting
around them.
SPEAKER_02 (36:36):
Yeah.
So is that so to speak to that?
Is that a a a bit more of adisciplined approach in terms of
trying to think of a word thatdescribes that?
Is that I love that.
SPEAKER_01 (36:44):
I'm gonna steal that one way, don't you?
Disciplined, that is exactly it.
Yeah, they they have a very evenif they wouldn't consider
themselves as a disciplined orum as you know, a systemized
person, they will still actuallyhave that discipline to know how
to respond as as the worldchanges around them.
SPEAKER_05 (37:01):
Yeah, yeah.
Chris, you mentioned increasingmargins, and it's it's somewhere
where I wanted to go around thisum the Fonterra um brand sales.
And um, you've done some recentuh survey work on on where
people might spend some of that.
So we've got that happening.
(37:22):
You've talked about someincreasing margins.
What is this environment gonnadrive farmers to do?
SPEAKER_01 (37:30):
Yeah.
Um, I'll start with the uh thelittle we've we just got
curious.
So we did a little survey.
Um, it's not gonna be one youhang your hat on because we only
had 28 respondents, but we wesurveyed 28 uh Frontera
shareholders, uh farmingshareholders, and said, where
are you gonna spend your money?
And 75% were gonna put theirmoney into debt reduction.
(37:54):
So a fairly conservativeconventional approach.
The we saw in some of them theydescribed when we went on a bit
dig a bit further and dug a bitdeeper, they talked about um
that was step one, and it wasabout creating some dry powder,
creating some opportunity withintheir business, reduce debt, and
then go for something afterthat.
(38:14):
I'll come to the second part ofyour question, Matt, which is uh
so where does that capitalgoing?
Where are these increasedmargins going?
They're going into land.
I'll push it out of the boat alittle bit further here, rather
cynically.
So I I think unfortunately NewZealand farmers can be a bit
like lemmings.
All right.
Property and the opportunity toacquire land and that sort of
(38:35):
thing is just uh is that they'llthey'll capitalise these returns
into land prices.
So uh I think this the smarterones may do that, but they'll be
they might bide their timing asto what they do and when they do
it.
But we can't help but sort ofsee some inflation of land
prices with this cash that'sflowing around at the moment.
(38:55):
But we did also ask the questiona bit where we said, well, if
your first choice is to pay downdebt, would you still spend some
money in another place?
All right.
And then we got some interestingthings around um succession, uh,
about uh technology adoption,about off-farm investment, um,
and and buying the batch orsomething like that.
So, you know, at a real highlevel, 75% of the money is going
(39:19):
to go into debt reduction, butthat may then play out into land
purchase.
25% of that money is going to gointo other places or free up
other opportunities, whetherit's on farm or off.
SPEAKER_05 (39:31):
Which I reckon's probably got a sparkle in your
eye for that 25%, becausethere's some fun, I shouldn't
say fun to be had, but but youknow, there could be some cool
things that happen on farm withthat, whether it be
infrastructure, whether it betechnology, and opening up
another um tier of production.
SPEAKER_01 (39:49):
Or hey, look, we opened up the podcast with
talking about the windstormthat's gone through the
basically the whole country.
You know, there's there's gonnabe some guys buying some
generators and and or thinkingabout how do I actually make my
my farm more resilient.
If we've got these large weatherclimatic shifts happening, uh
how do I make my business a bitmore resilient?
You know, I I would applaudthat.
(40:10):
I'm really keen to see thesuccession thing because we've
we know that you've got to havestrong financial position for
succession to be successful.
Uh and uh, you know, like ifthere's probably been a bit of a
spark come back into the dairyindustry with family wanting to
be part of the future of thebusiness, and you need capital
to do that.
So succession is going to doextra money, the money that's
(40:33):
going to into reducing debt willenable things like that.
We even had one of ourrespondents say, This enables me
to actually exit the industry.
So I can leave the industry andin whatever shape he wanted to
be able to leave it in, take hiscapital out, um, and he was
going to use it as anopportunity to exit the
industry.
So there will be some reallycool things happen as a result
(40:54):
of this capital injection.
I just don't want to see farmerswaste it.
It's a rare opportunity.
Yeah.
Um I just I'll throw this onein.
Is uh up in the Hawke's Bay,there's a story now that goes
right back to the uh Korean Warwhen there was the wall boom.
Um and this was before my time.
(41:15):
And uh and there was a a farmingfamily out there that they they
just basically they had uh theboom is not unlike the the
capital that we've got cominginto the dairy industry at the
moment.
And they chose with a lot ofwisdom in terms of how to
reinvest and use that money ontheir farm and grow their
business.
There is now a fourth generationof that family still farming and
(41:38):
farming very successfully andpaying homage to the decisions
that were made around havingthat capital and best use of
investing that capital back intothe business for the future of
the business.
So, four generations down, youknow, decisions that are made
today, now with this capitalthat's going to be in our dairy
industry, could be influencingwhat's going to be happening.
SPEAKER_02 (41:59):
Yeah.
I I I wrote as you started umsort of talking through that
whole thing, you know, youtalked about resilience there,
and it was like strong balancesheet, strong profit, and then I
put options.
You know, it like it it givesfarmers a lot of options,
doesn't it?
If you can, if you've got good,strong balance sheet, which that
uh, you know, Fonterra paymentpotentially allows some farmers
to do.
If you've got a good, strong,profitable business, then it
(42:21):
gives you some options, whetherit's succession or farm purchase
or or expansion or whatever itis.
Um, you know, it's a it's apretty exciting space to be in.
Oh, yeah.
SPEAKER_05 (42:32):
But even the resilience of the business, say
in the future, there'll be somechallenging times.
How are we gonna ride throughthose now?
And yeah, we might see thosethat have put it in the right
place, as you say.
SPEAKER_01 (42:45):
Yeah.
So if we've been smart enough,we know that you can have too
much debt in your business.
So don't don't slip back intothat position.
Um, too much debt's gonna bethere.
Um, watch out for complacency.
Watch out that you haven'tbrought in to systems or
operations that aren'tsustainable when the milk price
is lower, or the or you don'thave the ability to flex and
(43:06):
shift with it.
So understand where where yourbusiness is currently positioned
and don't slip back into some ofthose difficult places, those
dark spots that we've been in.
SPEAKER_05 (43:16):
That that debt place is is quite a um an interesting
space at the moment because ofso much that has been paid back,
I suppose, over the last weewhile I would say.
SPEAKER_01 (43:28):
Here's an interesting situation.
We we had um so we go back aboutum uh it's probably about eight,
nine years ago, we had a debtthat was over$21 a kilogram milk
solids, average debt for NewZealand dairy farms.
Okay.
And the milk price at that timewas around six dollars, six
dollars fifteen.
Spring forward to now, right?
And we're sitting on like a tendollar milk price, and our
(43:50):
average debt level is aroundeighteen dollars a kilogram milk
solids.
Our leveraging, our positioningis great.
All right, it's just verystrong, it's back in favor of
the of the farmer mortgageholder, if you like.
Um, they've got some clout withthe bank, um, and they've got
some dry powder, if they'recareful.
And that position's gonna getstronger.
(44:10):
Uh should be stronger now, andit should stay strong if we
manage it well.
SPEAKER_02 (44:14):
Yeah, yeah, 100%.
It's not certainly looking uhthe outlook uh as we flow
through this year and you knowand into next season, still
looking very, very solid, veryexciting times ahead.
SPEAKER_05 (44:25):
To close out, Chris, have we missed anything from the
sweet spot?
SPEAKER_01 (44:29):
Yes, and I'll kind of like join the loop of it.
We are still selling acommodity.
And commodities go up and down,and the resilience, the ability
to enjoy the up, but know how tomanage the down.
So uh if you know the sweet spotor you're looking, searching for
that sweet spot, when you as youfind that, if it ain't broke,
(44:50):
don't try and fix it, becausethat's what would help you
navigate the tough times aswell.
SPEAKER_02 (44:56):
Uh I was just gonna say, uh, I think it speaks to
because we we've referenced thatsweet spot a number of times,
and you know, there'd be lots ofthere'll be a lot of listeners
going, okay, well how how how dohow do you actually even know
where where you sit rather toother to others?
And I was just I came back tothat, you know, the power of
benchmarking to challenge andimprove, the only way to find
(45:17):
out, which which your clientshave been involved in now for a
long period of time.
Yeah.
Throw your numbers in and andactually just uh you know
challenge challenge yourself toimprove based on what others are
up to.
SPEAKER_01 (45:28):
Yeah.
Of course I'd love to have morepeople on dairy system
monitoring and pharmacks wouldlove that too, because that's a
national service.
But you've also got dairy base,you know, and they that's a
fabulous tool as well.
Benchmark, and and then don't bescared of the fact that you
might not be in the top 20%.
Yeah, then think about howyou're gonna get there.
SPEAKER_05 (45:44):
Yeah.
I had that kind of questionlined up that I was thinking,
oh, we don't want to swamp Chriswith uh with a whole lot of
that.
But if people did want to reachout, we'll we'll pass on.
SPEAKER_01 (45:55):
Absolutely.
Provide the link.
There's the the article that wasin the dairy exporter in 2023
that actually started all ofthis.
That's when I crystallized theideas.
Fantastic.
SPEAKER_05 (46:07):
Oh well, Chris, thank you very much for uh
joining us on Feed for Thought.
It's been uh it's been a funyarn.
There's been a lot of energy, alot of hands wave.
It's really come through.
So thank you very much forjoining us.
And uh thanks again, Wade.
And if uh you've enjoyed this,make sure you like and
subscribe.
Um I'll get in trouble if Idon't say that.
(46:28):
So thanks again, Chris, andwe'll see you all next time.
Thanks.
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