IntoDairy -A business case for the growth of Tasmanian ... · the current investment in dairy processing capacity will be sustainable into the future and that milk ... of Tasmania’s

IntoDairy -A business case for the growth of Tasmanian dairy industry

DairyTas Board

PO Box 1352 (7 Cattley St) Burnie 7320

Ph 6432 2233,

Fx 6432 2277

Email: [email protected]

Mark Smith Executive Officer Mob 0438 300 955

Steven Jarman Project Manager Mob 0408 224 505

May 2014

DairyTas has been working with its industry partners

to develop a project that will support the sustainable

growth of the Tasmanian Dairy Industry over the

next 5years. The aim of the project is to ensure that

the current investment in dairy processing capacity

will be sustainable into the future and that milk

growth will accelerate meet processing capacity. The

project builds on the positive industry outlook and

recent growth rates of over 3% per annum in the past

10 years to increase current milk output by a further

350ML by 2018.

mailto:[email protected]

Table of Contents

1. Introduction/Background ................................................................................................ 2

2. Overview .......................................................................................................................... 5

2.1. Vision ............................................................................................................ 5

2.2. Organisational Objective ............................................................................ 5

3. The Business Case ......................................................................................................... 7

3.1. Purpose of the Business Case ..................................................................... 7

3.2. Business Case Support ............................................................................... 7

4. Situational Assessment .................................................................................................. 8

4.1. A case study farm analysis. ...................................................................... 10

5. Implementing IntoDairy................................................................................................. 12

5.1. Status Quo ................................................................................................. 12

5.2. Implementing of IntoDairy project ........................................................... 12

5.3. Project Progress to Date ........................................................................... 14

6. Implementation Strategy ............................................................................................... 15

6.1. Project Title ............................................................................................... 15

6.2. Project Objectives ...................................................................................... 15

6.3. Project Outputs ......................................................................................... 15

6.4. Industry Outcomes .................................................................................... 16

6.5. Project Work Plan and Existing Programs .............................................. 18

6.6. Other Resources ........................................................................................ 20

6.7. Budget........................................................................................................ 20

7. Project Management Framework ................................................................................. 21

7.1. Governance and Milestones ...................................................................... 21

7.2. Post Project Review ................................................................................... 21

7.3. Dairy Industry Support ............................................................................ 21

8. Appendices .................................................................................................................... 23

8.1. Appendix A. Detailed Program of Activities ............................................ 23

8.2. Appendix B. DairyTas Board .................................................................... 23

INTODAIRY: Business Case Page 2

1. Introduction/Background

The Tasmanian dairy industry is the state’s largest rural industry. According to ABARES (2012),

the total value of Tasmanian’s agricultural commodities in 2010/11 was $1,152million. In 2011/12

Tasmanian’s 444 dairy farms produced 788 million litres of milk at a value of $340million, nearly

30% of the state’s total agricultural commodity value. Tasmania is Australia’s most positive dairy

region with approximately 1,500 people holding a paid position on Tasmanian dairy farms and 17%

of Tasmanian dairy farms employing trainees or apprentices in 2010/11, substantially higher than

the national average.

Dairy is an important contributor to Tasmania’s total primary production representing 22 per cent

of Tasmania’s output per figure 1 below.

Figure 1


Figure 2

Source: DPIPWE Industry Scorecard 2010/11

Dairy accounts for approximately 15 per cent of Tasmania’s food production in its own right, and

milk is an essential ingredient and input to the Confectionery sector with approximately 10 per cent

of Tasmania’s milk processed by Cadbury (Mondelez). Tasmanian domestic consumption is

estimated at less than 10 percent of total annual Tasmanian dairy output with the vast majority sold

as branded and value added products off-island to the other Australian domestic and International

markets.

The Tasmanian industry has significant potential for further development with a favourable climate,

access to water for irrigation, land available for new dairy developments and recent expansion in

milk processing capacity. Furthermore, climate change modelling suggests that Tasmanian pasture

production is predicted to increase substantially up to 2040 for both irrigated and rain-fed pastures.

These factors have been recognised by the industry with recent expansions in processing capacity in

Tasmania including $140 million by Lion (Japan), $11.5 million Fonterra (NZ) and $75 million


Tasmanian Dairy Products (Australia/Japan). These investments have placed a very high demand

for growth far in excess of the current growth trend.

It is estimated that Tasmania’s dairy production will need to increase by some 350 million litres per

annum (approximately 40% increase on 2011/12 production) over a 5 year period to sustain milk

processing capacity. Undoubtedly, market forces will deliver some of this growth; however a 8-

10% increase per annum in milk production for the Tasmanian dairy industry is achievable but is

unprecedented and comes with some risks and challenges.

In other agricultural commodities, market forces can often influence a substantial inter-annual

change, however milk production is a highly complex farming enterprise with long lead times and

biological constraints. Significant investments in cows, people, land and supporting infrastructure

are required to achieve growth. The desired industry growth target of 10% per annum could be

impacted by the risk associated with dairy farm investments. Despite the national dairy farm

surveys indicating that Tasmanian dairy farmers are the most positive, the challenges associated

with managing larger or multiple farm operations including the availability and cost of labour, high

debt levels and required businesses skills have been identified as key impediments to business

expansion.

Historical and current support for the industry through state and commonwealth governments and

industry levy funds has help facilitate growth of approximately 3% per annum over the last ten

years. This is an excellent achievement which compares very positively to mainland Australian

States. However growth of 3% per annum will not sustain the increased processing capacity in the

state.

The Tasmanian dairy industry has a significant opportunity to enhance past, current and future

investments in industry support through achieving a quantum rise in production. Achieving annual

production in excess of 1 billion litres of milk would make Tasmania the nation’s second largest

dairy producing state, something that was considered unachievable 20 years ago. A quantum and

rapid rise to 1.1 billion litres can be achieved within a 5 year period, but the current market place

may not be able to support this without significant risk as poorly planned and/or managed dairy

farming ventures and conversions could result in financial failures, environmental sustainability

issues or inadequate animal welfare practices. Any of these issues could become a disincentive to

further investment in dairy farming in Tasmania.

By bringing together current private and public efforts and enhanced funding support from both the

industry and government, the proposed business case for the IntoDairy Sustainable Dairy

Development (IntoDairy) project aims to provide a supportive framework of activity that enhances

the confidence of both current and new entrants to make the on-farm investments required to realise

this historic opportunity. The IntoDairy project is a dedicated program of activity that will engage

the best providers to disseminate knowledge and skills that will support and expand the confidence


in the Tasmanian industry and drive investment by current producers, new entrants, those

embarking on farm conversions and potential corporate entrants.

The three year investment period for the IntoDairy project does not seek to duplicate current

industry support programs, but create a new program of activity that can enhance previous and

current support programs by creating a higher target of production for Tasmania’s largest

agricultural industry. Existing industry programs such as Dairy Smart and People in Dairy that are

funded through Dairy Australia and DairyTas will be used to complement the project.

2. Overview

2.1. Vision

New on farm investment and jobs for the dairy industry in Tasmania. The primary high level

industry goal is that by 2018 production of 1,150 Million litres will be achieved. The IntoDairy

project will undertake a program activity that facilitates the dissemination of knowledge and skills

from preeminent providers that enhances the confidence of current and new entrants to the

Tasmanian dairy industry allowing the industry to achieve an unprecedented growth target of 8-

10% per annum. The primary growth targets for the state from the project are:

67,500 more milking cows

550 new jobs across the dairy industry

On farm investment of $600M

An increased gross value of farm milk income of $130M per year

The higher level output from the proposed IntoDairy project is delivering a program of activity

which current and new entrants to the Tasmanian dairy industry are engaged with, leading to

increased confidence and a higher likelihood of business success when embarking on dairy

expansion. The output will be the development of guiding principles relating to the key knowledge,

skills and processes required to achieve success when undertaking dairy business expansion. The

outcomes from the above are a well-informed industry that has acquired the required knowledge,

skills and confidence to support the industries growth targets.

2.2. Organisational Objective

The IntoDairy project builds on the 2011-15 Dairy Industry Strategic Plan but aims to double the

5% per annum growth projection identified in 2011 to close to 10% per annum over the next five

years. This revised growth target is to ensure that the current investment in dairy processing

capacity will be sustainable into the future. Processing capacity investment increases of 40 % have


occurred in Tasmania. Dairy is Tasmania’s single biggest agricultural industry, with an estimated

production value of close to $800 million in processed products.

The Tasmanian Government’s Economic Development Plan identifies the dairy industry as a

priority sector with excellent growth prospects. The Tasmanian government supports the dairy

industry in its growth and sustainability by creating an investment friendly environment to facilitate

sustainable investment in processing capacity and growth in milk production on farm. The

government has supported processors seeking to expand or establish in Tasmania. This has created

an environment where processing demand is far exceeding current supply capacity. As dairy is a

complex farming enterprise where achieving increasing milk supply has extended lead times and

biological constraints, achieving the revised industry growth targets in a sustainable manner will

require increased assistance in the short term.

DairyTas is the Tasmanian service delivery arm of Dairy Australia, investing farmer levies and

other funds to support the Tasmanian Dairy Industry and has an excellent record in delivering on

industry needs. DairyTas has recognised the need for increase funding over the next three years

(April 2013 to June 2016) to support the industry achieve its revised growth targets. Support from

Governments, processors, industry service provider and Dairy Australia/DairyTas is assisting

implementation of the IntoDairy project.


3. The Business Case

3.1. Purpose of the Business Case

The IntoDairy project has been established as the key industry program to support rapid and

sustainable growth of the Tasmanian Dairy Industry over the next three to five years. In the last two

years milk processing capacity in Tasmania has accelerated rapidly. This is evidenced by:

Fonterra’s $6.5 million gas conversion at Spreyton (2011) and $12 million upgrade of its

Wynyard cheese plant (2010). Fonterra has previously processed 65% of the state’s milk

with capacity of over 500ML.

Tasmanian Dairy Products has invested $75M in a new milk powder operation in Smithton

that opened in September 2012 with a capacity of 250ML.

Lion is investing $150M during 2013 and 2014 in a new plant in Burnie which centralises

their national cheese making which will mean 50-100ML of additional milk processing

capacity. Investments are also planned on King Island.

Cadbury (Mondelez) invest $20M in their chocolate making process at Burnie and

Claremont with in 2012 and plans future development.

Tamar Valley Dairy, Red Cow Dairies and Ashgrove Cheese have also invested in new

processing capacity.

Although current and historical pre-farm gate industry support programs are important to achieving

sustained growth of 3% per annum, they are not sufficient to support the rapid transfer of

knowledge and skills that the proposed dedicated growth program can provide. This program will

engage providers to deliver program related activities associated with farm investment, herd and

people management that will support and encourage producers to expand and new entrants to enter

the industry with a greater chance of achieving business success.

The project cannot guarantee business success, but it will provide those who want to expand,

undertake a dairy conversion, or new entrants, a far greater probability of success than would

otherwise be possible. This project will facilitate a process of harnessing the resources of the

private sector to bring additional investment into the dairy industry and ensure that this investment

is sustainable for the longer term. The project is managed by DairyTas and a fulltime Project

Manager has been retained to coordinate all of the activities utilising the resources of various

private sector and government organisations in delivering the activities outlined in section 6.4.

3.2. Business Case Support

A 40% increase in milk production would have an estimated farm gate value of $130M (per year)

and a total economic contribution of $330M. Tasmanian dairy farmers are strong supporters of their

local community and regional economy. Income from dairy farms goes through local service


providers and commercial operations. A further 550 direct jobs on farm and in factories and with

industry support service providers will be created directly. Currently around 1,500 people are

employed on dairy farms across Tasmania.

The IntoDairy project has commitments for financial support from:

1. Tasmania’s four major dairy processors ($216 000 over three years)

2. Dairy Australia and DairyTas ($180 000 over three years)

3. A network of six industry suppliers and service providers ($180 000 over three years)

4. The Tasmanian Government ($740 000), and

5. The Commonwealth Government ($400 000).

The industry support provided (per items 1 to 3 above) is subject to funding agreements with

milestones and managed through governance committees.

The Tasmanian Government has provided specific funding for the Planning for Conversion

Program ($400 000) and ($340 000) for employment of the Project Manager including provision of

a motor vehicle. Both are managed through established grant deed arrangements.

The terms and management arrangement regarding to Commonwealth Government assistance are

yet to be established.

The project budget and activities have been developed in consultation with key industry

stakeholders and is reviewed regularly. A project steering committee operating under the Board of

DairyTas is being established.

4. Situational Assessment

The dairy industry is the largest segment of Tasmania’s agricultural industry and a significant

contributor to the Tasmanian economy. Over the past 10 years average annual growth has been

approximately 3% (Figure 1). In 2012/13 there were 437 dairy farms, producing 760 million litres

of milk and approximately 8% of national production. This represents a 4% drop on 2011/12 with

the onset of relatively poor seasonal conditions and the lower milk price having an impact on

annual volume.

The outlook for 2013/14 is more positive as milk growth is returning and the average milk price is

expected to rise significantly with a final price of $6.90kg/MS for the season (at April 2014).

Tasmanian’s average dairy herd size is the highest in the country at 367 cows. Tasmanian dairy

farms are characterised by pasture based, predominantly spring calving production systems. The

comparative advantages of a cool temperate climate with reliable rainfall and availability of

irrigation water results in a lower cost production system. Tasmania also has considerable more

growth potential in comparison to other dairy regions both in Australia and internationally with the


Tasmanian and Australian Governments supporting major irrigation expansion to provide cost

competitive, high surety water.

As mentioned earlier industry growth has been achieved with a decreasing number of farms and

increasing average herd size, and an increasing nominal price trend. Figure 3 (below) clearly shows

the increasing level of industry output and price volatility since 1993.

Figure 3

Figure 4 Historic and projected milk production

Historically, limited processing capacity has at times been viewed as an impediment to significant

industry growth although in the last two years increased investment and the accelerated progression

in processing capacity has far exceeded expectations. This has resulted in demand for milk far

exceeding supply.

While Australia accounts for an estimated 2% of the world’s milk production, it is a significant

exporter of dairy products. Australia ranks third in terms of world dairy trade, with a 10% share,

behind the European Union and New Zealand. Japan is the single most important export market for

Australia, accounting for 19% of dairy exports by value. Australian exports are concentrated in

Asia, which represented 72% of the total dairy exports value of A$2.4 billion in 2009/10. The

Asian markets have considerable potential for consumption growth as incomes rise and diets

become more ‘westernised’. Australian dairy companies have proven track records in supplying


these markets over a number of decades. In addition there are established markets for selling

Tasmanian milk into the world’s two largest growing dairy markets – China and India.

4.1. A case study farm analysis.

The following case study highlights the potential in the Tasmanian dairy industry of what can be

achieved when a focused investment on dairy expansion is well implemented. The IntoDairy

program is targeted to assisting current and new entrants into the dairy industry achieve a similar

level of business of success in a five year period to meet the required milk demand associated with

the rapid expansion in processing capacity.

Although the dairy business highlighted here was able to achieve a high level of business success,

replicating such expansion throughout the industry without a high a level of industry program

support comes with associated risks. Large scale dairy farming ventures that are poorly planned and

managed and as a result are not sustainable financially, environmentally or have inadequate animal

welfare practices could become a disincentive to further investment in dairy farming in the state.

However, there are many learnings that can be captured from businesses, such as the business

highlighted here, that have undertaken a successful dairy expansion. Capturing these learnings and

facilitating a process of disseminating key learnings to a far larger audience than would otherwise

be possible will help alleviate the associated risks.

4.1.1. Large Scale Dairy Conversion

Grant & Kim Archer are experienced and skilled dairy farm owners who wanted to relocate from

their property near Smithton to be closer to Launceston to improve the educational opportunities for

their children. They did not want to sell their Circular Head dairy farm but preferred to use a share

farmer to operate that property while they relocated and used their equity in the Circular Head farm

to help fund the establishment of a new

dairy farming business close to

Launceston. Grant Archer used a farm

consultant to analyse business options

and the consultant was able to match up

the Archers dairy farming objectives

with Cressy cropping farmers Rob & Jo

Bradley’s goal of improving the

profitability of their farming business.

Budgeting and planning by the

consultant demonstrated that a share

dairy farming business would deliver

Plate.1 The Tasmanian and national Dairy Business of the

Year award winning combination. From left to right, Grant

Archer, Steven Saltmarsh, Jaimie Clarke, Kim Archer, and

Jo and Rob Bradley.


significant financial benefits for both families.

Grant & Kim Archer were able to contribute dairy farming skills, surplus dairy stock and capital to

the new dairy enterprise. The Bradleys provided the property that some years previously had been

used as a dairy farm and that had a herringbone dairy building that needed all new dairy equipment

and infrastructure. The share farming agreement was that the two families would each receive 50%

of the milk income and farm costs would be shared on an agreed basis.

After capital expenditure on dairy infrastructure, irrigation and livestock and recruiting several staff

the first milk was produced on the Cressy farm in July 2008 and 380 cows were milked that year.

Since the commencement further capital expenditure on a new rotary dairy and pasture

improvements enabled cow numbers to increase to 900 cows in 2012. Capital expenditure for dairy

infrastructure since commencing the business now totals $1.2 million and the Archers have

livestock and machinery assets of around $1 million. For the 2012 season the dairy business has

five employees plus Grant Archer as a part time manager whereas as a cropping property there was

less than one full time employee. The farm owners estimate dairying has doubled their gross

margin compared to their cropping enterprise and they are still able to do some cropping on the part

of the property that is not used for dairying.

The return on capital for the dairy business of the Archer and Bradley families increased from 8%

in 2008-9 to 20% in 2010-11 as a result of increasing production and top management. The high

return for 2010-11 enabled the combined business venture to win the Australian Dairy Business of

the Year Award. The award focused attention on the returns that can be achieved by top dairy

managers in Tasmania and on the potential for new dairy developments in the Northern Midlands.

Grant Archer has also commenced share farming a second dairy conversion property at Symons

Plains milking 950 cows.

Table 1. Bradley/Archer Farm Performance Summary from 2008/09 to 2010/11

Cows Kg milk solids Milk price, $/kg

MS

Return on

assets%

2008/09 380 150,000 $5.12 8%

2009/10 440 172,000 $4.29 3%

2010/11 500 217,000 $5.70 20%

Tasmania has seen a number of successful new dairy conversions established in recent years. We

have also seen a number of new conversions fail due to a combination of factors. The project will

focus attention on models for successful conversions with attention to detail around planning, farm

infrastructure and livestock management. Critical factors to be considered in a successful

conversion are planning the herd, adequate feed supply, capital investment is matched to the


business and avoids over capitalisation, access to advice and support services, adequate equity,

skilled labour and management experience particularly in regard to local conditions.

5. Implementing IntoDairy

5.1. Status Quo

The IntoDairy project was established to accelerate Tasmania’s milk output. Without IntoDairy

there was a real concern that the status quo, the continued rate of historical industry growth of 3 per

cent per annum, would have long term detrimental impacts on milk processor viability. It would

result in an underutilisation of the processing capacity within the state and a reassessment of

proposed projects and longer term investments by dairy processing companies. In the worst case

this will lead to a reduction in capacity due to a rationalisation of underperforming assets by one or

more processors. Experience in Tasmania and other states shows when milk processing businesses

fail their milk suppliers suffer substantial losses through non-payment for milk and not all suppliers

to the processor will be able to find a buyer for their milk.

Another primary consequence of an underutilisation of processing capacity is milk companies

reducing costs by paying suppliers a milk price that is less than competitors are paying.

5.2. Implementing of IntoDairy project

The overall viability of the processing sector is vital for the sustainable future of the industry.

Increased milk production to meet the IntoDairy target in 2018 will help ensure the sustainability of

both farm and factory investments. A healthy processing sector is required to support the on farm

production of milk in Tasmania. In total this means an expansion in the Tasmanian economy with

new investment, jobs and regional development activity.

The additional economic output and jobs is likely to occur in both traditional and non-traditional

dairy areas. Traditional dairy areas such as the Circular Head, Meander Valley and Dorset

municipalities will almost certainly benefit. In addition, a significant proportion of any growth is

likely to occur in non-traditional areas such as the central and northern Midlands – on the back of

recent and planned irrigation development. The overall impact for both traditional and non-

traditional areas will be a substantial economic, employment and social rejuvenation, with some of

the regions involved having been heavily impacted in recent times by the contraction of the forestry

industry.

A further benefit to the Tasmanian economy of the expected growth in production is additional

dairy levies of around $1.1 million. This will contribute additional resources to research in areas

such as automated milking systems, cow genomics, transgenic pasture varieties, and implications

for climate change/carbon trading – where Australia is leading the world.


There is a high level of complexity associated with the dairy supply chain; however the IntoDairy

program has identified a significant opportunity to elevate the ceiling level of production for the

Tasmanian dairy industry. To achieve this in a more sustainable manner an enhanced level of

support programs are required at the farm gate.

The IntoDairy project is aimed at targeting three key growth areas:

Table 1. Proposed activities to address the impediments associated with the three key growth areas

Growth Requirements

What is needed for

growth What are the impediments? Proposed activities

Investment

External investment is needed to purchase

the land, water, cows and infrastructure

required for expansion

Partnerships with investors who understand the investment

required to realise capital gain and the volatility in

profitability

Promote sustainable dairy conversion opportunities

Engage agribusiness and banks in seeking and aligning

investment partners

Support development and adoption of Automated Milking

Systems

People

Quantity and quality of available labour

that is skilled, motivated and self-directed

Facilitate access to skilled dairy immigrants

Promote local dairying career opportunities

Business management support to increase production from

existing suppliers

Cows Cow numbers

Innovative strategies to build cow numbers and retain young

stock in the State

Breeding programs and extension to improve the quality and

quantity of viable heifers

INVESTMENT

PEOPLE

COWS


Supported By

Required support What are the impediments? Concurrent supporting activities

Infrastructure

Dairies need reliable electricity for

milking and irrigation and reliable road

access for tankers. Aging infrastructure

and lack of high speed communications

will slow productivity and limit uptake of

innovative technologies

Funding for prioritising better road, electricity and

communications/IT infrastructure to dairying regions

Regulatory

environment

Industry growth requires regulatory and

planning approvals, particularly around

irrigation development and effluent

management

Extension relating to how dairy best meets its environmental

regulatory requirements

Social and

environmental

stewardship

Dairy must be a sustainable industry with

good animal welfare and environmental

credentials

Enhance existing extension programs for improving

environmental and animal welfare outcomes

Promotion of industry stewardship activities

5.3. Project Progress to Date

The project commenced in April 2013 with the appointment of Project Manager Steven Jarman. A

number of initiatives have been implemented to the end of 2013 including:

The development and launch of the Planning for Conversion Program. This $400 000 program

encourages Tasmanian landowners to develop Dairy Conversion Plans for specific properties

through providing dollar for dollar funding. There is sufficient funding to support completion of

eighty dairy conversion plans

The development and launch of the Planning for Growth Program. This program encourages

existing dairy farms to undertake investigation and develop a plan for business expansion

through providing dollar for dollar funding for eligible costs

Establishing relationships with key stakeholders and prospective investors

Identifying Tasmanian districts and regions with development potential for dairy investment

and any localised constraints.

Developing people management actions in conjunction with the Dairy Workforce Planning and

Action project.

IntoDairy is a three year project, April 2013 to June 2016, and with confirmation of the

Commonwealth government contribution it is now fully funded. The Commonwealth’s contribution

is supporting important initiatives in developing investment proposals, attracting skilled dairy

farmers and farm managers to Tasmania and supporting development of industry management

skills.


6. Implementation Strategy

6.1. Project Title

IntoDairy – Sustainable Dairy Development

6.2. Project Objectives

The project objective is to achieve an additional milk production of 350ML in five years (Figure 3).

Continued growth of the 3% per annum over the past 10 years will only achieve a proportion of the

growth needed; some 150ML or just under half of the required target. The other proportion of

200ML will need to come from new dairy conversions and greater investment in dairy expansions.

These estimates may change depending on growth in existing herds and dairy businesses and per

cow production levels.

The project is critically dependent on the on-farm investment activity to provide the catalyst for

supporting activities of building the herd and attracting people to work on farms.

Figure 3. Milk production growth target for the Tasmanian dairy industry.

6.3. Project Outputs

The project has a range of activities identified covering farm investment, people and cows. In some

cases these are discrete and new activities and in others they are building on existing activities. A

number of outputs will be produced that will contribute towards the industry outcomes in section

6.4 below.

0

200

400

600

800

1,000

1,200

1,400

Pro

du

ctio

n (

ML)


The main outputs based on the project activities are:

80 business plans for new dairy conversions

15 business plans for farm expansions

25 property purchase assessments

Investment packages

4 investment missions to targeted locations overseas and interstate

Awareness sessions for potential investors

Coaches and buddies for new investors and managers

Improved retention of managers and senior farm staff

Recruitment of overseas managers and employees to meet farm demand

Cost benefit analysis of rearing young stock options

Heifer rearing workshops each year

12 field days and workshops on rearing young stock and agistment options

6.4. Industry Outcomes

The primary outcomes for the program over the coming 5 years are:

67,500 more milking cows

550 new jobs across the dairy industry

On farm investment of $600M

$130M per year in gross value of farm milk income


The following schedules provide estimates of industry growth over the next five years along with

related investment and employment impacts. The key assumptions include:

A continuation of the contraction is existing dairy farms

The establishment of 42 new dairy conversions over the five years to 2017-18

Incremental new employment estimates based on herd expansion using accepted industry

ratios for cows:FTE employment

Substantial investment in irrigation, including water entitlements.

PRODUCTION SCHEDULE

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Growth in Current Farms Farm exits 1.0% pa

Increase in average cows/farm 4.0% pa

Increase in prodn/cow 0.0% pa

Current Farms 444 437 433 428 424 420 416

Cows/Farm 340 367 375 390 406 422 439

Total Cows 150,960 160,379 162,236 167,040 171,990 177,080 182,320

kgMS/Cow 7.7% 400 363 368 400 400 400 400

Current Farm ML 722 788 760 779 872 898 925 952

Increase % 9.2% -3.6% 2.5% 11.9% 3.0% 3.0% 3.0%

Conversions 5 5 10 11 11

Total Conversion Farms 5 10 20 31 42

Average Cows/Farm 800 800 800 800 800

Total Cows 4,000 8,000 16,000 24,800 33,600

kgMS/Cow 360 380 390 400 400

Conversion Farm ML 19 40 81 130 175

Total Farms

Farms 444 437 438 438 444 451 458

Cows/Farm 340 367 380 399 423 448 472

Total Cows 150,960 160,379 166,236 175,040 187,990 201,880 215,920

kgMS/Cow 400 363 368 399 399 400 400

Total ML 722 788 760 798 912 980 1,054 1,127

Overall Increase % 9.2% -3.6% 4.8% 14.2% 7.4% 7.6% 7.0%

DAIRY FARM EMPLOYEES

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Current Farms Cows/FTE 100 101 102 103 104 105 106

Total FTE 1,510 1,588 1,591 1,622 1,654 1,686 1,720

per farm 3.4 3.6 3.7 3.8 3.9 4.0 4.1

Conversions Cows/FTE 150 150 150 150 150 150 150

Total 0 0 27 53 107 165 224

per farm 5.3 5.3 5.3 5.3 5.3

Total FTE Total 1,510 1,588 1,617 1,675 1,760 1,852 1,944

Increase 108 58 85 91 92

Cumulative increase 108 165 251 342 434


6.5. Project Work Plan and Existing Programs

The program of activity associated with each of the three key growth areas of cows, people and

investment are presented in detail in Appendix A.

The proposed activities have been developed in consultation with industry representatives to ensure

that they connect with and build on current activities and industry support programs. The majority

of the activities are not currently being undertaken by the industry. Some investment attraction is

being addressed by the private sector and government as opportunities arise but there is no properly

resourced or cohesive effort to this activity. IntoDairy will provide this.

The investment activity is crucial to the project as it drives the people and cow demand across the

industry. The project is looking at new activity around encouraging new investment on farm

through overseas and interstate investors and local landowners. It is about attracting new investors

and encouraging existing investors and farmers to grow their businesses further.

IntoDairy aligns well with the Economic Development Plan for Tasmania and the recently

completed Regional Economic Development Plans. For example, the Northwest Plan identifies

skills, business and government collaboration, infrastructure and access to capital as key

requirements. The project will focus on these aspects using existing resources wherever possible

such as through the Dairy Industry Skills Action Plan, the Dairy Australia workforce planning pilot

project, the National Workforce Development program of Agrifoods Skills Council, Invest

Tasmania and Tasmania Irrigation Projects where dairy developments can be promoted and

progressed.

The project will also work alongside existing providers and projects to ensure that it does not

duplicate existing RD&E services to the industry. These services will be important for the ongoing

productivity developments across the industry. Examples of such projects and activities are:

ON-FARM CAPITAL INVESTMENTEstimate of On-farm capital investment excluding land

2013-14 2014-15 2015-16 2016-17 2017-18 Total

Livestock $m $m $m $m $m $m

Cows to Calve $1,500 /hd 5.1 19.5 21.2 21.6 22.1 89.4

Replacements (25%) $1,000 /hd 0.8 3.2 3.5 3.6 3.7 14.9

5.9 22.7 24.7 25.2 25.7 104.3

Upgrade Current Farms

Extra Irrigation $4,500 /extra cow mi lked 13.7 52.6 57.2 58.4 59.6 241.5

Other, Say $1,000 /extra cow mi lked 3.0 11.7 12.7 13.0 13.2 53.7

16.7 64.3 70.0 71.3 72.8 295.1

Conversions

Irrigation $2.5 mi l l ion/farm 12.5 12.5 25.0 27.5 27.5 105.0

Dairy $1.3 mi l l ion/farm 6.5 6.5 13.0 14.3 14.3 54.6

Other $1.0 mi l l ion/farm 5.0 5.0 10.0 11.0 11.0 42.0

$4.8 m/farm 24.0 24.0 48.0 52.8 52.8 201.6

Total 46.6 111.0 142.7 149.4 151.4 601.1


People in Dairy (Dairy Australia), including the new Workforce Planning & Action pilot

project commenced in Tasmania in October 2012. This project will engender actions to

improve the attraction and retention of labour in the industry. This will align with the people

attraction element of the IntoDairy project.

Dairy Smart extension services project with the Tasmanian Institute of Agriculture which

runs from 2012 to 2015. This project concentrates on delivery farm management activity

and regional business groups focusing on priority issues around farm production and

financial impacts. IntoDairy can encourage the involvement of new farmers in these groups.

Dairy Natural Resource Management activity with Dairy Australia (Tasmanian Coordinator,

Rachel Brown) covering environmental activities such as energy use, nutrient management,

effluent and other priorities.

Training delivery and skill development with the University of Tasmania, TasTAFE and

AgriTas Training Centre to build the skill base and support the new farms needed across the

state. These resources will be needed to link with the project.

Partnership programs with Regional Natural Resource Management organisations in the

main dairy regions of Tasmania will support all farmers with their environmental

performance around key industry priorities such as nutrient management, energy use,

vegetation management and climate change adaptation.

Tasmanian Irrigation infrastructure development and projects is providing a great support

for new dairy investment through access to water for irrigation. The key regional projects

will mean new areas can be opened for dairy development. The project will work with

Tasmanian Irrigation to secure investments by existing landowners in using water to

develop new dairy operations. The business planning activity will align with irrigation

development plans to ensure more robust and better prepared businesses. This will provide

opportunities for the development of new dairy farms in non-traditional dairy regions of the

Midlands as well as the development of dairy businesses in the more traditional areas of

Circular Head, Deloraine and the Northeast of Tasmania.

VDL Company expansion plans to develop new dairy operations in the Circular Head

region and significantly grow milk production.

Future Dairy project and De Laval automated dairy operations and robotic milking that

opens up new options for dairy farming in all regions.

Dairy farmer support services with milk company field staff to build on industry capacity

and knowledge. Field services resources, along with industry consultants, are an important

link to the farmers in communicating the availability of programs and support.

The Tasmanian Government’s Invest Tasmania has identified a focus on the dairy industry.

Collaboration with the project will bring private sector resources and expertise into the

investment attraction role providing greater opportunities for success. Investment attraction

will be coordinated closely with Invest Tasmania including the targeting of overseas and

local sources of investment.


6.6. Other Resources

i. Project Manager: Required to work across the project with DairyTas, service providers

and the industry for the three year term of the project.

ii. Website development: In order to house the information and service provision of the

project a website is required. This will build on the www.intodairy.com.au website

currently managed by DairyTas.

iii. Administration and promotions: Image development, advertising and promotions plus

office administration and facilities.

6.7. Budget

The project budget allocation is shown in detail in Appendix A. The main components of the

project budget are:

Activity Amount

On Farm Investment $632,000

Attracting more People $320,000

Building the Herd $169,000

Project Management $510,000

Image development and promotions, office

support

$50,000

Website development and information

management

$35,000

Total Budget $1,716,000

Funding Source Amount

Milk Companies $216,000

Dairy Australia/DairyTas $180,000

Industry suppliers and service providers $180,000

State Government $740,000

Commonwealth Government $400,000

Total Funding $1,716,000

The project is packaged as a cohesive range of activities that will together contribute to the

industry’s need for growth. Within that package there are many essential items that hinge around

investment and people attraction plus business planning and coaching. Some changes to the internal

budget allocation might be made to respond to specific conditions as the project evolves and

develops.

http://www.intodairy.com.au/


7. Project Management Framework

7.1. Governance and Milestones

The DairyTas Board will oversight the project management and funding. The project manager will

be employed by DairyTas and will report to the Executive Officer. Six monthly milestone reports

will be provided for the main funders along with updates for the Board which meets every 2

months.

A project steering committee will operate with the Board and Project Manager to oversee main

activities and directions.

The project will have a Project Reference Group which will meet in July each year to review

progress with the project and confirm ongoing support of the major funders. Representatives on this

group will include Dairy Australia, DairyTas, supporting milk processors and other major funders.

This group will focus on the delivery of activities, the outputs flowing from the activities which are

the project key performance indicators and then at a higher level the outcomes that are achieved by

the industry around the annual growth in milk production, farms, cows and people employed.

In addition a Sponsors Advisory group will operate for the industry service providers which are

funding the project and supporting the delivery of some main activities. This group will oversight

the activities and involvement of service providers in delivery and will meet twice a year to provide

advice as needed to the DairyTas Board.

A post project independent audit will be commissioned by DairyTas for all project income and

expenditure over the 3 years of the project.

Project outputs and milestones will be established for each year of the 3 year program with

measurable KPIs. Funding partners will have the opportunity to review their contributions after

each year if these milestones are not achieved.

7.2. Post Project Review

Resources developed thought the project will be maintained on the DairyTas and IntoDairy

websites. This information will also be available for ongoing use at the completion of the project

and this will include the provision of hard and soft copy materials from the project activities.

A full report will be produced at the completion of the project documenting outputs and outcomes

from the project. This report will be available within 3 months of the project completion. Resources

from the project will be available for ongoing use across the industry to help sustain the anticipated

progress made through the project.

7.3. Dairy Industry Support

It is recognised that the dairy industry in Tasmania has had good support from both State and

Commonwealth governments in the recent past. This support has been important across a range of

areas including industry development and extension, industry planning and infrastructure


investments at a national level and in Tasmania. It has included support for the national dairy

services levy, participation in national projects and grant programs as well as individual projects

supported under regional development and other initiatives.

IntoDairy is designed to focus directly on economic growth through investment and employment.

Other programs have supported resources, farm management and new developments but none have

provided a framework for industry development utilising all of the available resources. Where

possible this new project will use these resources to contribute to the growth of the industry.

Some more recent examples of this support are listed below:

State Government

Dairy Industry Strategic Planning

Financial Management for dairy farmers

Climate Connect Energy Efficiency

Tasmanian Institute of Agriculture RD&E services

Harcus River Road Power infrastructure

Dairy Industry Skills Action Plan and associated actions around training with Skills

Tasmania

Commonwealth Government

Nutrient Management programs

Property Management Planning

Smarter Energy usage

Climate Change Adaptation

AgriTas Training Centre

Business Continuity

Dairy500

DEEWR support for employment and training initiatives

Development of natural gas infrastructure

Waste management infrastructure for the milk processing industry


8. Appendices

Appendix A. Detailed Program of Activities

The proposed program of activities under the three growth area of cows, people and investment. It

provides a summary of the activity, the budgeted cost and whether the project is a new activity or

not.

Growth Area

Activities Details of proposed activities

More Cows

1.1 Cost:benefit analysis of retaining stock $10,000 New industry activity

Currently dairy farmers are capitalising on the opportunity to sell stock at very high prices to overseas markets. While this is likely to be profitable it is unlikely that farmers understand the economics of this decision as it is characterised by a number of complexities such as an aging herd and loss of genetic gain. Research to determine the true cost will be undertaken.

1.2 Cost:benefit of rearing additional stock $10,000 New industry activity

One option to offset the impact of selling calves overseas is to rear additional stock. Dairy farmers don’t always know what this costs and to what extent it can offset the impact of selling stock overseas.

To rear additional stock there will be challenges associated with these calves being born later and a greater proportion being bull bred. Strategies need to be developed to allow farmers to successfully rear these stock.

1.3 Purchase: sale models with rearers to generate cashflow for dairy farmers $10,000 New industry activity

One of the reasons that stock are being sold overseas (and probably the most common reason) is the requirement for cashflow. An alternative model where heifer rearers buy the young stock and agree to sell them back, or a profit share agreement needs to be explored and promoted.

1.4 Exploration of suitable wintering areas

$5,000 New industry activity

As the number of farms increases and that increasingly these farms depend on irrigation there will be an increasing requirement for cows to be wintered off. This is already a limitation to the industry. An economic model of this for landholders with specific growth patterns will be developed and the enterprise promoted specifically to a range of these landholders.

1.5 Field Days/Workshops associated with 1.1, 1.2, 1.3, 1.4


12 meetings/events to communicate information will be held throughout the project. Information will be provided in hard and soft copy to farmers.


1.6 Item “Importation of cows” has been deleted

Left blank intentionally

1.7 Heifer rearing training


There will be increasing capacity in a number of areas of the state to run the extra 28,000 young stock required to support the additional 70,000 cow herd. This will be associated, to a large extent by Tasmanians water development activities. Heifer rearing is a specialist enterprise and there will be the requirement to train those with a desire to specialise in this area. In a significant proportion of these new areas the graziers will only have experience in extensive grazing practices.

Four specialist dairy heifer rearing workshops and supported learning activities will be provided for dairy farmers and other land owners.

More People

2.1 National and International recruitment including, South African, NZ, SE Asia and European recruitment


Opportunities exist to attract both managers and investors. A coordinated promotion both nationally and internationally with the relevant information about the industry and opportunities is very likely to have a high level of success. People with dairy industry knowledge and experience will be the priority. Locations of possible investors will be targeted after initial feasibility work with the government and private sector to identify prime targets.

A series of international/national recruitment programs would fulfil this requirement. It is likely that the project would need to fund selected people with the breadth of knowledge about the industry to cover off on migrating, working and investing in Tasmania. Other service providers will be included as needed to support this. Much of this focus will be on attracting people capability and investors. This means we can bring farm expertise to Tasmania to help manage the new and existing farms. Some focus will be provided to attract dairy farm operators from other regions of Australia where dairying does not offer the same opportunities as it does in Tasmania.

2.2 Coordination of training No additional costs

There is a need to match the specific needs of the industry in terms of staff and employees to the training that currently exists. There is a requirement for coordination in this area with Skills Institute, private providers and AgriTas working to implement the main components of the Dairy Industry Skills Action Plan.

Review and coordination of training material and impact with both Skills Institute and AgriTas around NCDEA industry training using the Dairy Workplace Planning Coordinator and the National Workforce Development program with Agrifood Skills Council. The


focus needs to be on quality of service and on increased participation in training to deliver a more skilled workforce.

2.3 Work with People in Dairy Program to create further awareness and skill development in this area No additional costs.

Information sessions will be coordinated on how to use the People in Dairy information that is contained on the website and in ESKi. The project will collaborate with the Workforce Planning Project on programs to attract and retain more people in the industry. This means using the resources of Dairy Australia and the Workforce Planning project to increase the use and awareness of the People in Dairy resources.

These sessions will be developed with the People in Dairy (PID) program in the state using existing resources and programs. . 3 sessions across the state each year.

2.4 Promote dairy as a legitimate, challenging and rewarding career.

$10 000

There is high unemployment in the state and an opportunity to recruit people from industries that have been affected by the downturn exists. These industries might include the forestry, building and the manufacturing industries.

Three industries with major losses to be targeted. These are likely to include vegetable processing in Circular Head and Scottsdale, the timber industry state-wide. This will be implemented through the Workforce Planning project. Resources are also being developed through the Dairy Careers project currently underway in Tasmania.

2.5 Buddy system for new investors/managers


New investors or managers have historically struggled with the different climatic conditions and service provision in Tasmania compared to their homeland. In order to help with the settling in period (est 3 months) they would be assigned a local “buddy” to assist them with things like sourcing service providers, cattle, agistment, settling into the community and finding schools and services for their families and employees.

10 visits annually at 1 day per fortnight over the 3 years covering in the order of 50 new farms

2.6 Coaches for new investors/managers


Coaches would play an information role for new entrants to the Tasmanian industry. They would likely provide local information and support on the season, pasture management and animal nutrition and health.

Likely to require 10 coaches annually at 1 day per fortnight.

2.7 Developing and retaining quality people


The dairy industry is in need of more people capable of farm management to support our growth plans. The skills for this come through a combination of experience and training. This activity aims to provide a practical approach to develop more future managers and ensure more people stay in the industry longer term. It will as needed link in with formal training opportunities. A new program (Dairy Business Management Program) is currently being developed with Dairy Australia and will run over 2 years starting later in November 2014. It will focus on practical business support and have a mix of the following:


Workshops around business planning, managing risk,

basic financials with trained and experienced

professionals

Local area small group work to consolidate farmer

learnings through the year

Individual mentoring support with experienced industry

and farmer representatives

For new investors and farm managers coming to Tasmania

from overseas it will build on the assistance provided by a

local “buddy”.

Twenty places per year will be offered will be offered in the Dairy Business Management program in the first two years. Farmers participating in the program will be carefully selected to ensure maximum impact.

Investment

3.1 Source investors from Asia, South Africa, NZ, Europe and locally to invest in dairy. Link to recruitment overseas for management and employment roles.

$10,000

Corporate and larger dairy farm investors have struggled to prosper in the industry. In many instances this is due to the fact that their investment strategy and understanding of the industry is not well aligned. It is important that investors do well and received the best information and advice.

While engaging in the recruitment of managers from overseas it would also seem appropriate to look for potential investors at the same time. Most of the cost of doing this activity is budgeted through 2.1 above so this area is not a high cost and it reflects the high level of commercial activity already underway. The project manager will be focused on facilitating more of this and working with bodies such as Invest Tasmania and institutional investors.

(These are costs not covered in the recruitment activities of 2.1)

3.2 Awareness and information sessions for potential investors. Including industry background and historical performance, timelines, risks and rewards.


This will focus more on investors not involved with farm management. In order to encourage these potential investors to move into dairy there will be the need for targeted promotion. This would be in the form of printed material provided in packages.

These packages could be distributed to investors and would form the basis of the investor recruitment and information sessions held locally and abroad. Collaboration with Invest Tasmania will be important.

Service providers (eg real estate agents and livestock agents) could provide information in and support for the packages. The initial stages of the project will assess the overseas locations to be targeted.

3.3 Business plans for dairy conversions.


The growth strategy is very highly geared around new and sustainable dairy conversions. In order to encourage landholders to consider a conversion some considered input will be required. It is anticipated that if there was a 50% contribution from industry that 1 in 2 might act. This is also about having a more sustainable model for successful dairy conversions. By sustainable we mean both financially and environmentally. 80 plans over 3 years at a cost of $5,000 each are proposed. The Archers/Chilvers and Archer/Bradley conversions are good examples of successful conversions and offer a model for future investors.

3.4 Expansion plans for existing farms to grow.

Growth from existing farms is also critical to the success of the project and has the possible advantage of being less risky. Again a



50% contribution would be required from the land holder for business plans. 15 plans over 3 years are proposed.

3.5 Property purchase plans


In order to keep existing properties in dairying and to encourage new land into dairying property purchase assessments could be encouraged by offering a 50% subsidy on plans. In addition to this the compilation of these individuals’ plans could be very useful in dealing with large investors (for example the plus $100m category) by forming a larger proposal to them. 25 plans at a cost of $5,000 each.

3.6 Co-ordination or promotion of aggregations of properties into packages that are investor ready.

This would require a degree of work with real estate agents to develop information memoranda for individual farm businesses that could easily be compiled together to suit larger investors. There is a need to move to compiled WIWO Information Memoranda to cater to these larger investors. Project resources will be used for this activity in collaboration with Invest Tasmania.

Website Development

Into Dairy website

$35,000

Further enhance and develop the existing website as the repository of main project resources and industry information.

Project Management

Project Manager


This position will coordinate the project activity, manage deliver of all elements and work in with existing activity where required with both government and private sector 3 years

Industry Image, promotions and administration


Office support and materials Advertising of activities and information Industry image development around IntoDairy brand with Dairy Australia


8.1. Appendix B. DairyTas Board

DairyTas is the Tasmanian service delivery arm of Dairy Australia, investing farmer levies and

other funds to support the Tasmanian Dairy Industry. DairyTas’ main aim is to identify, prioritise,

promote, facilitate and leverage opportunities for research, development and extension activities in

the Tasmanian dairy industry which will assist dairy farmers to manage change.

Further to this the DairyTas Board seeks to encourage the development of a sustainable, vigorous

and dynamic dairy industry in Tasmania that offers economic and social rewards to dairy farmers

and those in the wider community.

The Board’s main roles include:

encourage ideas and adopt a rigorous process for identifying and prioritising the needs

of dairy farmers

identify underlying problems which such needs reflect

resource projects, co-ordinate funding and commission projects

monitor and evaluate project performance to ensure there are genuine outcomes

act as a broker for innovative projects

attract funding to leverage the pool of available resources

provide local input to national forums and programs

provide feedback to farmers, industry service providers, Dairy Australia and other

stakeholders

DairyTas adopts a wider role in the Tasmanian dairy industry to add value to its programs by co-

operating with other stakeholders such as the Tasmanian Institute of Agricultural (TIA) Dairy

Centre, NRM Regional Organisations, State Government, industry consultants and agribusiness and

the Tasmanian Farmers and Graziers Association Dairy Council (TFGA).

DairyTas Board members are:

Cheryl McCartie (Chairman), Grant Rogers (Deputy Chairman), Cherrylyn Ker, Simon Bennett,

Symon Jones, Richard Rawnsley (Tasmanian Institute of Agriculture), Nigel Brock (TFGA

Dairy Council), Greg Bott (Rabobank) Industry Representative, and Mark Smith (Executive

Officer).

DairyTas Management and Support:

Mark Smith, Executive Officer and Public Officer

Sharlie Gibson, Office Administrator

Steven Jarman, Project Manager IntoDairy


Contractor MaryAnn Hortle, Cows Create Careers, Picasso Cows, Careers Coordination

Consultant Rachel Brown ,Dairy NRM

Consultant Penny Williams, Workforce Planning Project Coordinator

The contractor and consultants are funded by Dairy Australia and work closely with local industry

stakeholders and DairyTas.

DairyTas was established in 1997 as an incorporated not for profit association and has a positive

track record on delivering a range of projects for the industry in Tasmania. Some of these projects

include workshop/seminar/field days on topics such as business and financial management, animal

health, education and training, nutrients and effluent management, natural resource management

and industry development.

DairyTas also runs industry events including the Tasmanian Dairy Conference, Dairy Awards and

Agfest Dairy Pavilion. These projects range in size from $10,000 upwards to $250,000 in value.

DairyTas is funded from dairy farmer levies via Dairy Australia. Other funds are secured from

government and industry to support projects and services.

Documents

IntoDairy -A business case for the growth of Tasmanian ... · the current investment in dairy processing capacity will be sustainable into the future and that milk ... of Tasmania’s