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.
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
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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
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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
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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
INTODAIRY: Business Case Page 5
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
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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.
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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
INTODAIRY: Business Case Page 8
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
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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
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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.
INTODAIRY: Business Case Page 11
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
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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.
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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
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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.
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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)
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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
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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
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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
INTODAIRY: Business Case Page 19
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.
INTODAIRY: Business Case Page 20
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.
INTODAIRY: Business Case Page 21
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
INTODAIRY: Business Case Page 22
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
INTODAIRY: Business Case Page 23
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
$54,000 New industry activity
12 meetings/events to communicate information will be held throughout the project. Information will be provided in hard and soft copy to farmers.
INTODAIRY: Business Case Page 24
1.6 Item “Importation of cows” has been deleted
Left blank intentionally
1.7 Heifer rearing training
$80,000 New industry activity
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
$70,000 New industry activity
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
INTODAIRY: Business Case Page 25
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
$45,000 New industry activity
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
$45,000 New industry activity
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
$140,000 New industry activity
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:
INTODAIRY: Business Case Page 26
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.
$22,000 New industry activity
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.
$400,000 New industry activity
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
INTODAIRY: Business Case Page 27
$75,000 New industry activity
50% contribution would be required from the land holder for business plans. 15 plans over 3 years are proposed.
3.5 Property purchase plans
$125,000 New industry activity
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
$510,000 New industry activity
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
$50,000 New industry activity
Office support and materials Advertising of activities and information Industry image development around IntoDairy brand with Dairy Australia
INTODAIRY: Business Case Page 28
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
INTODAIRY: Business Case Page 29
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.