Business By Waikato businessman Andy West

Dairy farming has hit an all time high and that's just as well for New Zealand.

The country needs it to keep succeeding. A number of factors have contributed to its immense success. The most important has been the huge growth in global demand for dairy products. Each year that demand is growing by more than the combined milk output of New Zealand and Australia. It is happening in developed countries as much as in developing countries, due to a combination of growth in population and even more importantly – growth in wealth.

Two other factors have contributed: Firstly, we now enjoy vastly superior access to overseas markets thanks to successive governments negotiating free trade agreements. Secondly, dairy farmers insisted on concentrating resources in a single firm, Fonterra.

So are there any clouds on the horizon? Yes – one. That cloud is the industry's insistence that farmers focus on cost, not profit. The cost focus derives from the fact that a dairy farmer relies on a processor to do something worthy with their milk and that all they can personally focus on is expenditure. Not quite. A profit focus would see farmers assess the marginal cost of ‘supplementary' feeds; the marginal cost of a Herd Homes animal housing system; the absolute cost of making animal welfare – body condition score – the free floating variable in a farming system – and so on.

A focus on profit and beneath this productivity is way, way overdue in the dairy industry because with this focus comes more efficient nutrient management, improved animal health, improved animal welfare and lower – if chosen – stocking densities.

These are truly significant, additional benefits. Of course the sheep industry will rejoice if dairy farmers remain focused on cost. Lambs are now selling for $8kg paddock weight; the same as milk actually. When strong wool kicks in – and it will – then what? Then there will be a true competition for land use again and everyone will benefit from that, farmers included.