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3.Results & Analysis

3.1 Sheep & beef sector

3.1.1.Prioritisation of issues

The major technical issues facing sheep and beef farmers switching to organic production are the limited ranges of options for endo-parasite and woody weed control.

Endo-parasites, by reducing the productivity of young stock, decrease farmers’ ability to supply animals to market on time and to tight specifications. They also limit the ability to mate young stock (e.g. hoggets, heifers). Treatment of young stock with chemical remedies, particularly lambs under BIO-GRO certification, results in a loss of organic status for 12 months, effectively removing them from the organic supply chain. This is less of an issue with older cattle finishing policies.

Ecto-parasites, particularly flies, while not having a major impact on production, are seen as a major animal welfare threat that is difficult to tackle. Both these animal health challenges pose an immediate constraint to the development of the sector.

In contrast, woody weeds represent a medium- to long-term threat. In some situations it may be possible to eradicate all woody weeds using sprays prior to conversion, and then simply control the re-growth. Such a time and capital constraint would be likely to prevent many farmers from converting to an organic system. Once converted, mechanical control has its limits as a weed control option for large-scale operations.

Premiums and market stability were regarded as an important issue for all of the workshop participants. The credibility and consistency of the market was of major concern. This is a problem not restricted to low-chemical or organic systems. The instability in the industry explains in part why many service providers have been reluctant to enter the industry. The lack of technical support was another major constraint to growing the sector. Organic producers do not have the same knowledge and management infrastructure available to them as conventional producers.

The limited knowledge and skills of the grower was the other main technical issue. The participants believed that gaining knowledge about organic farming can be more difficult, time consuming and expensive than for conventional farming. As the size and scale of businesses considering conversion to organics expands, there is a need for employees to be re-trained in the skills required for organic production systems and management. However, this situation is constantly improving as more information is developed and new networks and common-interest groups become established.

There was concern that the general release of GMOs represented a threat to the wider organic sector.

In summary, the major technical issues confronting sheep and beef farmers considering converting to organic production are endo-parasites and woody weeds. These same two constraints were identified by two large groups of sheep and beef farmers located through each of the major geographic areas of both the North and South Islands (Mackay et al., 2001). The economic effect of endo-parasites can be offset by adequate premiums, but the problem of woody weeds is likely to prevent many farmers entering the industry, except those who can afford to purchase weed-free farms, or can eradicate woody weeds prior to conversion. The most limiting industry and infrastructure issue is market instability. As the market becomes more stable and more farmers express interest in converting to organic production, advisory services will become increasingly available.

Constraints to conversion to organic sheep and beef production identified by the Focus Group and listed in Table 1 and Table 2.

Table 1 Technical constraints identified by the Focus Group, and their relative importance to conversion to organic sheep and beef production

Issue	Comment	Rating1
Soil fertility/biology of soils.	Lack of fertiliser options Building soil biological activity	Many
Soil health	Soil management and impact of higher cattle number	Few
Animal health	Internal parasites, flies, lice	All
Animal management	Limited availability of stock, stock numbers	Few
Genetics	Supply of rams with resistance/resilience genes	Few
Animal nutrition/pasture quality	Greater emphasis on pasture composition, mineral content and nutritive value Higher pasture covers, allowances	Few
Weeds	Weed control, particularly gorse Confidence/attitude (to weed control)	All
Energy use	Increased fuel use for weed control	Few
Management skills/knowledge	Management Needs to be proactive and flexible Attitude and confidence How to survive the transition? - Knowledge/experience/opinions Suitability of property - Soils - Land (in relation to weeds, etc) - Management systems	Many

1 The words "All", "Many" and "Few" rank the importance of an issue in terms of the proportion of votes it received by workshop members.

Table 2 Infrastructure and industry – Constraints emphasised by the Focus Group, and their relative importance in conversions to organic sheep and beef production

Issue	Comment	Rating1
Signals on premiums/market stability	Market credibility Standards/premium Uncertainty in a rapidly changing environment	All
Standards	Comparing assurance systems Tension with conventional industry	Few
Industry infrastructure and strategy	Market size/strategy/specification Marketing skills/development Confidence in assurance system	Many
Services	Lack of good independent information/advice Leadership/national policy	All
Genetics	GMOs Apparent inability to assure freedom from GMOs Impact on New Zealand’s image	All
Perceptions about organics	Neighbours – rules/attitudes	Few

1 The words "All", "Many" and "Few" rank the importance of an issue in terms of the proportion of votes it received by workshop members.

3.1.2 Hawkes Bay summer moist sheep and beef model

The MAF Farm Monitoring model (MAF, 2000) represents an estimated 1,066 summer moist farms from Wairoa southwards through the western side of Hawkes Bay and Wairarapa, extending down to the northern Tararuas. The farms have breeding flocks of predominantly Romney and Coopworth, with a trend to increased breed diversity. All replacements are bred on the farm and most lambs and surplus ewes are sold for slaughter. Most farms have breeding cows, but many are tending towards more flexible cattle policies and introducing dairy-bred bull-beef policies.

The Hawkes Bay summer moist sheep and beef model was used as the base on which to examine the financial implication of addressing the major constraints to organic meat and fibre production.

Assumptions for conversion to organic production

Changes and assumptions made to accommodate the constraints identified by the Focus Group included:

Stock management policy

• Reduce stocking rate by 10 percent.
• Higher cattle to sheep ratio (50:50) for managing feed quality and endo-parasites.
• Older-aged flock and herd, same reproductive performance and same losses.
• Switch to a Texel x resilient Romney cross to get hybrid vigour.
• Hogget lambing: mate top 30 percent only, with 50 percent lambing.
• 350 ewe hoggets. Culling throughout autumn.
• Smaller numbers of lambs sent more frequently to sales. All stock sold by the end of April.
• 80 percent lambs and 90 percent of cattle finished to CERTENZ standard with premiums of 15 percent for both. 60 percent of lambs and 90 percent of cattle finished to BIO-GRO standard both with a premium of 50 percent.
• Apart from breeding rams and an increase in the number of breeding bulls, no stock are introduced from outside the farm.

Agronomic management

• Shift in fertilisers to unprocessed products (e.g. reactive phosphate rock with elemental sulphur), no processed nitrogen fertiliser.
• Weed control results in the use of more fuel, and higher wages and ACC for mowing or hand control of thistles, gorse and trees, but no herbicide costs. Overall expenditure is similar to the current chemical budget.
• Reduced expenditure for pest control.
• More proactive management, with higher labour requirements.

In the next section the implications of incorporating the stock policy changes (e.g. lower stocking rate, higher cattle ratio, etc) on the financial performance of the business are examined, followed by an evaluation of the effect of lower stock performance and premiums on the profitability of the organic stock policy model.

Organic stock policy model

This model shows the changes in stock management policy recommended from the workshop, and uses production data from the MAF base model. It shows the differences in farm profitability arising from changes in stock policy before adjustments are made for productivity. The differences in stock policy between the two systems are summarised in Table 3 and Table 4. The reduction in stocking rate of the organic stock policy model was 12.8 percent rather than 10 percent. The percentage of sheep and cattle stock units less than 12 months of age declined by 34 and 35 percent respectively, in the organic stock policy model.

Table 3 Differences in stock on hand

Stock type	MAF base model	Organic stock policy
Ewe hoggets	846	350
MA ewes	2626	1777
MA rams	33	20
Rising 1 year heifers	35	67
Rising 2 year heifers (dry)		65
MA cows	83	150
Rising 1 year steers	22	67
Rising 2 year steers	24	45
Rising 1 year bulls	90
Rising 2 year bulls	19
Breeding bulls	3	6

Table 4 Other differences from the MAF base model

Category	MAF base model	Organic stock policy1
Stocking rate (su/ha)	10.0	8.7
Sheep to cattle ratio	70:30	50:50
Stock purchases	Stock purchases from other farms occur	Except for breeding rams and bulls, no stock purchases
Rising 2 year heifers	Mated	Not mated
Labour costs ($)	16,917	13,917
ACC ($)	786	647
Freight ($)	4,137	3,700

1 The organic stock policy option, modelled using Stockpol, was found to be feasible, despite the higher pasture covers throughout the year than the MAF base model, resulting from the lower stocking rate and emphasis on an older cattle policy. The decision by the focus group to drop the stocking rate was made without the benefit of the Stockpol analysis. The implications of changing the stock policy but not the stocking rate is explored further later in this section of the report.

Organic production model

This model has the same stock policy as the organic stock policy model but includes the effect of the higher endo-parasite burden on animal performance. The main difference is decreased lamb growth rates of 15 percent from weaning to sale. This is based on production data collected from a systems comparison between sheep and beef production under conventional and non-chemical farming practices (Mackay et al., 1999). In addition, differences in cost structure are factored in at this stage as shown in Table 5.

Table 5 Differences in cost structure between the MAF base model and the organic production model

Organic final model

The final organic model has the same stock policy and production assumptions as the organic production model. Added to this model are premiums for organic produce and the percentage of stock finished to organic standards.

3.1.3 Financial outcomes from the modelling

MAF base model

Organic stock policy model: changes to the stock policy of the MAF base model to accommodate the constraints to conversion identified by the workshop members.

Organic production model: same stock policy as the organic stock policy but with the effect of the higher endo-parasite burden as it affects animal production factored into the model, and with differences in costs between the MAF base model and organic production model.

Organic with premium model: same as the organic production system with returns based on a premium of 50 percent for both lamb and beef, with 60 percent of lambs and 90 percent of cattle finished to specification.

Changes in stock policy and specifically a higher cattle ratio of breeding cattle and cattle mated as rising 3-year-olds had the single biggest effect on the profitability of the organic farming system (Table 6). A change in stock policy, assuming static production and prices, results in a reduction of $65,361 in gross farm revenue, and a decline of over 50 percent in economic farm surplus. Contributing to this is a drop in sheep gross revenue of $52,869, mainly because of reduced sheep numbers.

Cattle gross income increased by only $6,572 despite a significant increase in cattle numbers. This reflects the lower profitability of breeding and older cattle mating and finishing policies compared to the model’s mixed enterprise. While cattle numbers increased significantly, the number of cattle sold increased only marginally, as a major part of the increase was in breeding cows. The changes to the sheep and cattle policy were necessary to provide the tools to manage the endo-parasite challenge to young sheep in a sustainable way within the system.

It is reasonable to assume from these findings that funding the reduction in farm income resulting from the changes required in stock policy to accommodate the constraints to organic production during the conversion period would be a major constraint to growing the organic sheep and beef sector.

When decreased production, consisting of decreased lamb growth rates, is factored in (using static price assumptions), gross farm income was reduced by a further $10,536.

Table 6 Financial outcome for the MAF base model and the organic farming systems under various scenarios

1 The values in brackets are when the changes are made but the stocking rate is maintained.

The Organic stock policy column shows the effect on income of a change in stock policy assuming that there is no associated drop in production. The Organic production column accounts for the drop in growth rates of young stock (about 15 percent) that results from the increased endo-parasite burden of organic stock. The Organic with premiums column shows the returns based on a premium of 50 percent for both lamb and beef, with 60 percent of lambs and 90 percent of cattle finished to specification.

The StockPol model of the organic system developed by the authors indicates that with emphasis on older cattle classes, the 10 percent drop in stocking rate suggested by the Focus Group to reduce the pressure on young stock following conversion was overly conservative. The decision by the focus group to drop stocking rate was made without the benefit of a pasture model on hand to examine the implications of a change in stock policy on feed demands. Pasture covers of the organic stock policy option modelled by Stockpol, indicate that the stocking rate did not have to be reduced below that of the MAF base system, to maintain per head performance and to provide a greater feed buffer for the organic enterprise. If the comparison with the MAF base model was made at the same stocking rate, the economic farm surplus (EFS)/ha for the Organic stock policy, Organic production and Organic with premiums at a stocking rate of 9.96 EFS increases to $176/ha, $157/ha and $331/ha respectively. The premium required to break even at the same stocking rate as the MAF base model is 23 percent on all stock sold.

The effect of premium, the proportion of stock finished, and certification system

When considering BIO-GRO and CERTENZ certification systems, it is necessary to understand the relationship between premiums, the proportion of stock finished, and EFS (Figure. 1).

Figure 1 The effect of premium and the percentage of lambs* finished on economic farm surplus (EFS) in an organic sheep and beef farming system

The shaded area of the graph represents EFS that is lower than for the MAF base model, while the area in white represents an EFS greater than the MAF base model.

* As the percentage of lambs finished increased, the percentage of beef cattle finished was increased by the same proportion, to a maximum of 100 percent. The percentage of cattle finished to specification was 30 percent higher than the percentage of lambs finished.

Figure 1 shows that when premiums are high, EFS is more sensitive to the percentage of lambs finished than to an increase in premium. However, when premiums are low, EFS is more sensitive to an increase in premium than to an increase in the percentage of stock finished.

Because of the large variability in premiums received by organic farmers producing under CERTENZ and BIO-GRO specifications with both season and location, it was decided not to include comparative premiums for the two-certification systems. The workshop concluded that BIO-GRO products currently receive higher premiums than CERTENZ products due to BIO-GRO’s history, reputation and more stringent standards. It was also considered that a higher proportion of stock could be finished to certification specifications under CERTENZ than BIO-GRO, as the CERTENZ standards allow a greater degree of intervention without the loss of certification. The workshop participants estimated that around 60 percent of lambs and 90 percent of cattle could be finished under the BIO-GRO certification system, and 80 percent of lambs and 90 percent of cattle under the CERTENZ system.

3.1.4 Comparison with other sheep and beef systems

The MAF base model (Hawkes Bay summer moist) can be characterised as being intermediate between the more extensive sheep and beef operations found in the drier or hill country regions of New Zealand, and the more intensive sheep and cattle finishing systems found in Southland and Waikato/Bay of Plenty. For the more extensive systems, fewer changes (livestock species and age cohorts) would need to be made to the existing livestock policy to accommodate the constraints to organic production, and hence the impact on the financial performance of the operation would accordingly be reduced. In contrast, with a more intensive finishing operation the changes to stock policy would be likely to result in greater income loss.

3.1.5 Risks and the impact of risk on financial performance

A decrease in premium paid has an immediate negative effect on the financial viability of those sheep and beef producers that had to make fundamental changes to their existing livestock policy operation. A higher ratio of breeding cattle and cattle mated as rising 3-year-olds was necessary with the MAF base model used in this study to effectively manage the parasite challenge in young sheep.

A major breakdown in endo-parasite management threatens the percentage of lambs that are finished to specification. Since most lambs are finished before the start of autumn when the cumulative effect of parasites is at its greatest, the impact of an outbreak on the financial performance of the business can be managed. If registered to CERTENZ rather than BIO-GRO (as the CERTENZ standards allow more intervention without the loss of certification), there is greater certainty in being able to supply to specification.

With cattle sold as rising 2- and 3-year-olds, the need to treat weaner cattle following a parasite outbreak does not jeopardise their organic status as 2- and 3- year-old animals. Similarly, with ewe lamb replacements, a parasite outbreak in their first autumn and winter of life can be managed without affecting either their breeding performance or certification as breeding animals. A recent study (Mackay et al., 2001) examining the challenges to conversion to low-chemical or organic supply demonstrated that, with planning, production loss can be reduced. The development of decision rules to identify and treat at-risk stock at an early stage is an integral part of that planning process.

Physical damage to soil and pasture by the older cattle during the winter and early spring has the potential to reduce pasture growth and cause environmental damage. Removal of fertiliser nitrogen as a risk management option requires that a more conservative approach is taken for feed budgeting. In dry environments and high pH soils, the inability to maintain soil fertility and legume growth is compromised by the limited range of fertilisers available.

In the long-term, the greatest risk to the sheep and beef sector, and for all sectors, is weed infestation as it affects all aspects of land use.

 

Contact for Enquiries

Kay Brown
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND

Phone: +64 4 894 0695
Fax: +64 4 4 894 0746
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