Lessons from the US Clean Water Act for New Zealand Dairy Farmers

In 2011, the Parliament, with the backing of the majority of people in New Zealand, created the Environmental Protection Authority.  New Zealand’s own EPA.  Like other environmental agencies around the world, New Zealand’s EPA had sweeping new powers to protect the environment of New Zealand.

At that time Zeecol founder, William Mook could see the writing on the wall for New Zealand’s dairy industry. You see, William worked for the US EPA fresh out of college in 1976 and witnessed the impact of the similar regulations on businesses in the US at that time.

Take the 1976 clean water act.  When New Zealand’s EPA placed 800 sampling stations across the country, it was clear that the dairy industry would be looked upon as a major culprit, just as it was in the USA.  In the early 1970s the USA had 12.5 million dairy cows.  After 5 years, the number of dairy cows plummeted to 6.0 million.  The value of farms plummeted too.

 
 

Already banks have cut credit lines

In New Zealand, banks have already become nervous and shored up lending requirements. That’s because they have seen the value of farms drop in the wake of New Zealand’s creation of its own set of EPA standards "The national policy on freshwater management", currently being applied by every regional councils in the country with a different set of rules depending on what they think is potentially the best solutions for their own region. A dairy farm in New Zealand before 2011 was $58000 /ha and there were 6.4m cows. Today, banks value dairy farms at $40000 /ha and there are only 5.0m dairy cows. Banks are reducing their exposure to the dairy industry and New Zealand’s EPA and the regional councils have only started applying rules.  They have for 5 years given ample warning to the industry and this year 2017, rules will start to bite by issuing consents on Nutrient Management where, in due course, the farmers are required to indicate how they are going to meet indicated targets according to “Good Management Practice”

87% of dairy farms in NZ are currently in violation of the new rules and need costly short-term resource consents to keep farming

33% of dairy farms in NZ are financially stressed due to credit reduction

Backing up the harder stance, the NZ regional councils issued stock reduction rates on three kiwi dairy farms in the second quarter of 2017 (two in the South Island, one in the North), two of which were over 1,000 cows and have had to cut their inventory in half. This then affects bankability as farm values are linked to stocking rates. Banks won’t be able to facilitate these farms further lending or even call in lending as the lower stocking rates lead to lower productivity. Banks will revalue these farms which will change the loan to value ratio, tightening credit facilities.

 
 

Clearly, New Zealand is embarking on the same free fall that happened in the USA in the 70’s. This is why Zeecol is in NZ today. NZ is the only country that has recently created regulation that seeks to radically change an industry that is currently working. William wants to help farmers in New Zealand stay on their farms, not sell them out to large corporates, because he has seen that happen on US farms in the 1970s and 80s.  The same thing happened in Canada and in Europe as well.

 
 

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Why NZ banks are tightening credit on dairy farmers

On top of this, the white papers from the financial sector show that NZ banks are looking to reduce their exposure in rural areas because the value of farms will be going down in response to the stricter water standards. It’s not the low payout that is changing banker minds. It’s the regulatory uncertainty due to water quality that will reduce stocking rates.

The combination of reduced payouts and credit tightening is creating a perfect storm for large corporates to come in and buy up troubled farms. These troubled farms will then be operated industrially, and drive the remaining family farms out of business. It need not be that way.

In Rabobank’s NZ Agribusiness Outlook 2017, Rabobank comments that “the dairy industry faces a period of heightened regulatory uncertainty and change” on both the liberal operating environment and free trade. “Environmental regulations will continue to tighten, with significant plan changes in the Waikato and Southland regions having the potential to increase costs and restrict intensification in 2017 and beyond.”

Mook explains “What happened in the US is that big corporates came in and spent the money to buy up farms in trouble, and implement similar systems to what Zeecol intends to install. Investors offshore are waiting for the farms to get to point of serious pain; investors in New York are already waiting to invest in the right program. Now Zeecol is listed, banks are already calling us to see if we will buy farms who are hurting. Farms won’t be able to sell if they are not compliant. Farm values have dropped by up to 41% already, according to banks, because very few are compliant in NZ today.

Bank documents show that over a third of dairy farms in NZ are in trouble. Apparently, 1 in 7 dairy farms have had divorces due to stress. This need not happen. There is capital and talent aplenty to solve New Zealand’s dairy crisis and clean up New Zealand’s dairies in the process.
Zeecol is proposing to multiply the profits of dairy farms and create income for investors, by merely asking farmers to cover the first and last month’s payment of a 20-year program of payments that get the system in.”
It’s simple: Zeecol allows you to meet compliance regulations, increase your stocking rate, increase production, increase profit
OR you can, of course, wait for the inevitable and turn it over to foreign investors who understand the complexity and have access to capital and talent to install these systems.

 
 

It's time to milk your waste.

Extract value from your waste. Rather than sending nitrates into your water, put profit into your pocket. Turn your waste into useful products instead of putting it into the waterways or underground aquifers. Exceed compliance standards, so you can increase rather than decrease stocking rates. Talk to the Zeecol team today.

 
 

 

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