A study tour, led by Kite Consulting’s managing partner John Allen, visited Argentina to see what could be learned from its dairy industry.
Argentina is the eighth largest country in the world, but 70 years of political mismanagement has bankrupted the country five times.
The country is struggling to recover from the latest crisis, with interest rates of 60 per cent and a volatile currency.
With a population of 40 million, they currently produce enough food to feed 400m, so agriculture is a key part of the economy.
The group visited a diverse range of farms including grazing, freestall and compost barn systems. Mr Allen explained most farms follow a ‘pasture plus’ approach due to the climate.
“This means they are grazing perennial grass and alfalfa pastures throughout the year, supplemented with maize silage, alfalfa hay and soya. Feed costs are typically 30 per cent below world prices due to local availability and cows are fed well.”
There are about 700 dairy processors and 85 per cent of production is for domestic use.
“The government taxes exports to keep local prices low. What is also strange to us is most farmers do not live on their land, but in towns and cities and commute up to 50km.”
HOW THE CHALLENGES ARE ADDRESSED IN ARGENTINA
1 Dealing with volatility is an everyday job. Mr Allen said being a dairy farmer in Argentina means you must be able to deal with volatility. The climate is extremely variable, with periods of drought not uncommon, but periods of flooding also seen.
2 Prices vary massively – they are currently about 17-21ppl equivalent. Because the government taxes exports, it limits farmers’ opportunity to access world markets when prices are good, in effect limiting their price. Yet when world market prices are poor, imports can come in, depressing local prices.
Layer on top of that huge currency fluctuations and the impact that has on input costs, as well as high interest rates, and the result is significant uncertainty.
“It was fascinating to see how farmers cope with that,” said Mr Allen. “We visited one farm that had made significant profits in 2017, and was ‘burning them up’ at present. He managed to exist without debt by building up his bank balance in the better times and living off it in the poorer times.
“The other thing we saw was tactical timing of debt – taking debt when interest rates were low and fixing the rate, to enable step-change investment in the farm at a predictable cost.
“Farmers had to be very aware of forward financial planning to succeed.”
3 There is a lack of investment but massive potential to grow. Because of the challenges around volatility and the government instability in Argentina, farms are not as well invested in as they could be. Dairy herds can be put down without housing and can produce decent yields all-yearround.
The potential is huge, due to the climate and established dairy sector. Good land costs £7,410/ha (£3,000/acre) and cost of production is typically 15-20ppl.
“If the policy position changed, Argentina could very rapidly out-perform New Zealand on the world dairy market, which would have an impact on global prices, although this seems unlikely in the short- to medium-term.”
4 Labour problems are not unique to UK farms. One of the biggest challenges for Argentina’s dairy farmers is access to labour.
Mr Allen explained: “We saw a range of different approaches being undertaken to address this, with skilled workers often being tied in to long-term contracts over 15 years, with a promise of a profit share in the last five years of that arrangement to ensure they stayed.”
5 Complacency holds back technical efficiency.
“One of the most striking things was that we saw farms with favourable grazing conditions, access to great quality, cheap feed that was being fed generously, and yet yields were only around 6-7,000 litres/cow/year from Holstein cattle,” said Mr Allen.
“It seemed that because feed was cheap, there was little effort to maximise production from it, yet optimising technical performance from a given set of inputs is key to profitability and resilience to volatility.”