Latest / Talking Dairy / What's the return on your levy investment? Findings from an independent report. | Ep. 114

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What's the return on your levy investment? Findings from an independent report. | Ep. 114 · Talking Dairy

• 0:01
  SPEAKER_01: Kiora and welcome to Talking Dairy.
• 0:03
  SPEAKER_01: I'm your host Jack McGowan from Dairy and Z.
• 0:06
  SPEAKER_01: It's great to have you with us.
• 0:08
  SPEAKER_01: Today we're talking about something pretty fundamental: the levy.
• 0:11
  SPEAKER_01: If you're a dairy farmer paying the levy, you'll want to know what you're getting back for that investment.
• 0:16
  SPEAKER_01: Well, we've just released an independent report that measures the return on your levy investment over the past five years, and the findings are worth talking about.
• 0:25
  SPEAKER_01: Joining me to unpack the report are Tracy Brown, Chair of DairyNZ, and Dr.
• 0:30
  SPEAKER_01: Alan Pearson, group chairman of Prime Consulting International, and Nimobell, the independent analysts who did the work.
• 0:37
  SPEAKER_01: Welcome to the podcast, Tracy and Alan.
• 0:40
  SPEAKER_01: Thanks for having us, Jack.
• 0:42
  SPEAKER_02: Thank you, Joe.
• 0:43
  SPEAKER_01: Tracy, before we get into the report, can you give us the basics of how the Levy works for those who don't already know?
• 0:49
  SPEAKER_00: Okay, well, first things first, Jack.
• 0:52
  SPEAKER_00: The Levy's a collective investment made by all dairy farmers, and it underpins so much that helps us do what we do for dairy.
• 1:01
  SPEAKER_00: That's arguably the best in the world.
• 1:04
  SPEAKER_00: So Kiwi farmers invest around 70 million a year via the Levy to deliver a more positive future for New Zealand dairy through science, research, advocacy, and farm extension.
• 1:15
  SPEAKER_00: And the practical application of the Levy is really that it helps us share in the success in breakthroughs and lessons collectively.
• 1:22
  SPEAKER_00: So it allows farmers to pull the resources and knowledge and to share the cost of on-farm solutions.
• 1:29
  SPEAKER_00: And our research is really sort of future focus.
• 1:32
  SPEAKER_00: It means Dairy and Z can provide a clear and really united Dairy Voice that helps us move towards more practical policy and the government currently supporting the primary sector.
• 1:43
  SPEAKER_01: And you've just released this independent return on investment report.
• 1:48
  SPEAKER_01: Feels like quite a significant piece of work.
• 1:50
  SPEAKER_01: What prompted it?
• 1:51
  SPEAKER_01: And has DairyNZ done this before?
• 1:54
  SPEAKER_00: Yeah, so over the past century, farmers have collectively invested in the industry's future, as you know.
• 2:00
  SPEAKER_00: That's included for the last almost two decades via the Dairy NZ levy.
• 2:05
  SPEAKER_00: So Dairy Z's vision is to ensure that the levy is the best investment for every New Zealand dairy farmer.
• 2:11
  SPEAKER_00: Earlier this year, when we went out for the levy consultation, farmers asked for increased transparency around how that's invested, Jack.
• 2:18
  SPEAKER_00: So that's really what this piece of work is about.
• 2:21
  SPEAKER_00: But the Dairy Z Board commissioned this economic analysis through NIMOBAL to measure Dairy and Z return on investment from the milk solids levy since the year 2020.
• 2:33
  SPEAKER_00: It's independent and it does show a strong return on that collective investment.
• 2:39
  SPEAKER_00: We really want farmers to know that we've got their backs today and for future challenges because the world's changing really fast.
• 2:47
  SPEAKER_00: And that's why we need to continue doing this collective sort of investment in science and other research to help us keep ahead and help us with responsible dairy.
• 2:58
  SPEAKER_01: Yeah, and I mean the way that farmers collectively have invested and worked together since inception is the envy of many industries, and um we should keep doing that.
• 3:09
  SPEAKER_01: So, Alan, tell us about NIMOBEL and your approach to this review.
• 3:14
  SPEAKER_02: NIMOBEL's one of New Zealand's leading economic analysis and advisory firms.
• 3:18
  SPEAKER_02: It's a subsidiary of Prime Consulting International, and we specialize in the primary sector.
• 3:24
  SPEAKER_02: So our experience includes working with industries, corporates, government clients within New Zealand and internationally, including in the Ministry of Primary Industries in New Zealand.
• 3:34
  SPEAKER_02: With this particular study, we put in a lot of a huge amount of technical analysis using accepted measurement techniques that includes cost-benefit analysis to quantify the net present value or the value of current investments in today's dollars.
• 3:48
  SPEAKER_02: Also, we did Monte Carlo simulation modeling, which looks at scenarios and risks.
• 3:53
  SPEAKER_02: It's kind of a water thing to deals with uncertainty.
• 3:56
  SPEAKER_02: Finally, we workshopped the findings with Pharma Panel, Dairy and Easy On staff, board members, and external experts to uh pressure test and scrutinize the results so that we know that they're robust and they're not just ours alone.
• 4:11
  SPEAKER_02: They're actually, you know, grounded in the truths of the industry, you could say.
• 4:16
  SPEAKER_02: So the review studied 92 of DairyNZ's larger initiatives out of a total of 179 projects that DairyNZ had on the go during the six-year period that we studied, which was 84% of the total investments made by value.
• 4:31
  SPEAKER_02: Obviously, there are very high strike rate in terms of the coverage of total investments.
• 4:36
  SPEAKER_01: Oh, so it sounds like a very comprehensive process and not a lot of stones left unturned if you were looking at 84% of um the investment we had made.
• 4:46
  SPEAKER_01: What did you find, Alan?
• 4:48
  SPEAKER_02: Yeah, well we found, and this was pleasing,$341 million of levy investment was made during that period.
• 4:56
  SPEAKER_02: And from that, DairyNZ generated an estimated$2.98 billion, just under$3 billion of value.
• 5:04
  SPEAKER_02: So that equates to 26 cents per kilogram of milk solids collected over that period, and it's more than a seven times return on the investment.
• 5:13
  SPEAKER_02: There are two contributors to that gain or the value added.
• 5:18
  SPEAKER_02: One is productivity gain.
• 5:20
  SPEAKER_02: So that's um farms being able to produce more efficiently, more quantity, you know, more value, if you like.
• 5:27
  SPEAKER_02: 45% of the return was in that area of productivity gains.
• 5:33
  SPEAKER_02: And the other 55% was in cost avoided.
• 5:36
  SPEAKER_02: So that's value created where if you hadn't made the investments, the industry would have effectively gone backwards and incurring costs that it didn't need to incur.
• 5:46
  SPEAKER_02: So ways of mitigating potential costs that could otherwise have occurred.
• 5:51
  SPEAKER_01: Can I just check?
• 5:52
  SPEAKER_01: Was the 26 cents per kilogram of milk solids was that over the period that you looked at, or was that per year?
• 6:01
  SPEAKER_02: That's for every kilogram of milk solids collected during the six years.
• 6:05
  SPEAKER_01: Okay.
• 6:06
  SPEAKER_02: So seven times return is effectively equated from the fact that dairy farmers paid during the period 3.6 cents per kilogram of milk solids produced as levy.
• 6:21
  SPEAKER_02: And you got 26 cents back.
• 6:24
  SPEAKER_02: The difference between 3.6 and 26 is 7.22 times return for every kilogram of milk solids.
• 6:31
  SPEAKER_02: So you can see that's a pretty solid return.
• 6:34
  SPEAKER_02: Individual farmers would have benefited differently from the different initiatives.
• 6:38
  SPEAKER_02: But everybody would have benefited by some of the initiatives overall.
• 6:43
  SPEAKER_01: I see.
• 6:44
  SPEAKER_01: And how does that kind of return compare to return on investment on other investment options?
• 6:52
  SPEAKER_02: I'd say it's extremely good.
• 6:53
  SPEAKER_02: Extremely good, particularly in the context of an industry that's very mature, you can say.
• 7:00
  SPEAKER_02: So getting productivity gains in an industry that's already very mature is a big challenge.
• 7:05
  SPEAKER_02: This shows a lot of creativity, a lot of innovation and well-targeted investments to actually drive that value.
• 7:12
  SPEAKER_01: All right.
• 7:13
  SPEAKER_01: Well, Tracy, let's come back to you.
• 7:14
  SPEAKER_01: Can you tell us about some of the big hitters in terms of return on investment?
• 7:19
  SPEAKER_00: Yeah, thanks, Jack.
• 7:20
  SPEAKER_00: Can I just say that the report was really pleasing and reassuring to receive from the board's perspective?
• 7:27
  SPEAKER_00: But some of the biggest hitters were the initiatives that really helped farmers with productivity, profit, resilience, and which effectively pushed back on some of the economic and regulatory pressures that we're facing.
• 7:40
  SPEAKER_00: And that's whether it's, you know, through pragmatic policy or whether it's been through sustainability actions.
• 7:46
  SPEAKER_00: So that included the 22 initiative to support farm profitability, which were things like dairy-based benchmarking, the step change project, which a number of farmers have been involved with, and that's helped them adapt regulatory pressures, uh work across the low-end systems, a better fresh water and climate policy, development of good management practices in regions with specific issues.
• 8:11
  SPEAKER_00: And there's also been a lot of collective investment in biosecurity.
• 8:15
  SPEAKER_01: Excellent.
• 8:16
  SPEAKER_01: Back to you, Alan.
• 8:17
  SPEAKER_01: Nothing's perfect.
• 8:18
  SPEAKER_01: What did the report identify as areas where DairyNZ could do better or improve?
• 8:25
  SPEAKER_02: We identified four main areas.
• 8:27
  SPEAKER_02: I think the first one is you've got to keep driving the value, and that means driving uptake.
• 8:35
  SPEAKER_02: Obviously, some of these innovations, especially on the productivity side or adaptation to climate or to other challenges, when they're new, they take a while for people to really understand and implement.
• 8:48
  SPEAKER_02: So there's an ongoing journey here to drive value from the investments that have been made, along with making new investments, and that's getting broader uptake.
• 8:57
  SPEAKER_01: You mean um farmers taking on the research or the solutions that have come out of DairyNZ?
• 9:04
  SPEAKER_02: Yes, 100%.
• 9:06
  SPEAKER_02: It's about extension work, it's about understanding, it's about the fact that farmers learn from farmers a lot of the time as well.
• 9:13
  SPEAKER_02: So getting enough proof of concept on the ground is a starting point.
• 9:17
  SPEAKER_02: And then from there, getting people, more and more people, to adopt those new ways of doing things, seeing the value.
• 9:23
  SPEAKER_02: And that overall drives value up exponentially over time.
• 9:27
  SPEAKER_02: The second thing is that clearly some of the work, particularly like one that we saw very evidently, was a Milking Time Act or MATS T.
• 9:37
  SPEAKER_02: You know, these sort of practical tools that farmers can use really help to drive value in very tangible ways.
• 9:44
  SPEAKER_02: Never lose sight of the fact that practical tools that farmers can use are critical to get that value on the farm.
• 9:51
  SPEAKER_02: And they complement some of the broader policy work and other stuff, which can a, from a farmer's point of view, can seem quite nebulous, but nonetheless does actually ultimately benefit you.
• 9:59
  SPEAKER_02: But those practical tools are very well received and they definitely have a short track, a very short connection between the investment made, getting the thing working, and then, you know, once it's it's actually out there and available, it'll drive value very quickly.
• 10:15
  SPEAKER_02: So it's a quick win type situation that you can balance with some of the more strategic stuff.
• 10:20
  SPEAKER_02: We saw from the perspective of Beerie New Zealand, there's an opportunity here to dashboard the results.
• 10:28
  SPEAKER_02: We've got better IT nowadays, we've got AI, we've got all sorts of tools where we can actually start looking in real time at what the investments are doing.
• 10:37
  SPEAKER_02: And we recommend that some of that gets adopted into the way things are done.
• 10:42
  SPEAKER_02: So you don't just measure what's done, you know, afterwards, way afterwards, but you're actually able to see more in real time how you're tracking in terms of setting goals and achieving them.
• 10:54
  SPEAKER_02: Case studies are also really, really good because they show how something conceptual or something big can actually produce value at the farm level, at the industry level, shows the application of the knowledge and they really help with explaining things as well as understanding them.
• 11:12
  SPEAKER_02: So dashboards and case studies are a great area to focus on.
• 11:16
  SPEAKER_02: And finally, involving farmers themselves in co-design of the research activities will definitely make them stronger.
• 11:23
  SPEAKER_02: And there's good examples of that actually happening.
• 11:25
  SPEAKER_02: And if you sort of read the narrative, if you have a chance to get a cup of tea and read this 140-page report, you're going to see there's some pretty good evidence in there of particular things that have done well in challenging environments through involvement of the farmers in the communities and all the other actors in the communities.
• 11:43
  SPEAKER_02: So Dairy New Zealand's been a catalyst and a driver of these things and provided inputs and knowledge and different things, but the things really been stronger because farmers have been part of it from the get-go.
• 11:55
  SPEAKER_01: Absolutely.
• 11:56
  SPEAKER_01: Alan, I'm curious because my main role at DairyNZ, aside from um hosting podcasts, often works in the space of dashboards and case studies, um, but more coming out of projects, research.
• 12:09
  SPEAKER_01: Can you tell me more about when you're talking about dashboards and case studies?
• 12:13
  SPEAKER_01: What does that mean for farmers?
• 12:15
  SPEAKER_01: Like what would they see?
• 12:17
  SPEAKER_02: Well, I think you can have the dashboards and case studies at two levels.
• 12:20
  SPEAKER_02: I mean, one is the internal level for management, the people running the projects, and that stuff that might, you know, make farmers' eyeballs glaze, but actually is important for the people running the projects to know that they're running on time and things are getting achieved, you know, so the project management kind of a tool and a planning tool for internal use.
• 12:41
  SPEAKER_02: But I think in terms of external facing, life on the farm, what's meaningful to see on a dashboard would be indicators related to improvements around dairy metrics in the industry, right?
• 12:54
  SPEAKER_01: Okay.
• 12:55
  SPEAKER_02: Now those dairy metrics will be set collectively through the strategies that you know, Dairy New Zealand's organized itself with nine strategic themes now, and and we clustered these projects initiatives in the nine strategic themes.
• 13:07
  SPEAKER_02: So there are clearly key performance indicators that go with those nine key strategic areas, and being able to see progress and understand what's driving the progress.
• 13:17
  SPEAKER_02: So seeing the progress comes from the dashboard, right?
• 13:20
  SPEAKER_02: So you can see the dial moving and how much it's moving.
• 13:24
  SPEAKER_02: On the other side, the case studies show the how.
• 13:28
  SPEAKER_02: How is it happening?
• 13:29
  SPEAKER_02: What's being done that makes that happen?
• 13:32
  SPEAKER_01: Okay, I understand.
• 13:34
  SPEAKER_01: So, Tracy, how are you responding to these recommendations, or how is DairyNZ responding to these recommendations?
• 13:41
  SPEAKER_01: And how will farmers be able to see that we're following through?
• 13:45
  SPEAKER_00: Yeah, that's a great question, Jack.
• 13:47
  SPEAKER_00: So it's been really great to get the recommendations and we are across them or getting across, you know, the ones that we need to make some further changes on.
• 13:57
  SPEAKER_00: So we are making increased use of results dashboards to provide more transparency.
• 14:02
  SPEAKER_00: We'll generate some farm-based case studies because farmers really like to learn from other farmers, but that'll help us demonstrate RD and you know, in terms of practical actions and what that looks like on farms.
• 14:15
  SPEAKER_00: And we're involving farmers more in the co-design of research programs to make those programs even stronger.
• 14:22
  SPEAKER_00: One really recent example of sort of co-design and research that comes to mind is around resilient pastures, and I think that was on one of the recent podcasts, as well as that our recent work around heat stress, which lots of farmers have been involved with, shaping up the program and making their farms available for research.
• 14:41
  SPEAKER_00: So, really, this whole review by NIMO BAO provides a really independent, data-driven view of whether the investments that DairyNZ made on behalf of our farmers with the levy is really providing bang for buck or not.
• 14:54
  SPEAKER_00: It should enable levy payers to see which of the research and science and advocacy and farmer extension programs are providing the best returns and where the areas are for improvement, as well as just give them a bit more information about what we're doing and what applies to their business that they may not be aware of.
• 15:12
  SPEAKER_00: So we'll continue to measure what we're doing, what we're investing in, and providing that feedback and just continuing to improve for the benefit of all our farmers.
• 15:22
  SPEAKER_01: Thank you, Tracy.
• 15:24
  SPEAKER_01: And a question for both of you, or maybe Tracy's in charge, so she should probably answer.
• 15:30
  SPEAKER_01: When will you repeat this?
• 15:32
  SPEAKER_01: And what can we expect to see then?
• 15:35
  SPEAKER_00: I guess it's best practice to check and adjust investment strategy.
• 15:38
  SPEAKER_00: So we'd expect to do that on a regular basis.
• 15:42
  SPEAKER_00: So we'll do something like this at least, you know, in the next five years.
• 15:46
  SPEAKER_00: The review of the strategy, we have sort of ongoing processes around that.
• 15:50
  SPEAKER_00: But the actual ROI project needs a little bit of time in between, obviously, to just give the research and investment some time to play out.
• 16:00
  SPEAKER_00: But what you can be sure of, I guess for farmers that are listening, is that we'll be keeping a relentless focus on delivering positive future and good investment for New Zealand dairy.
• 16:10
  SPEAKER_00: We weigh up every investment that comes to the board so that we make sure that it will drive productivity, it'll strengthen our farm systems, it'll help our farmers compete globally and sustainably.
• 16:22
  SPEAKER_00: And it's what we need to do to continue to lead the world on responsible dairy.
• 16:27
  SPEAKER_01: And where can farmers read this report?
• 16:31
  SPEAKER_00: Well, uh, there's a full 140-page report, which is excellent.
• 16:36
  SPEAKER_00: Thanks to NAMO Bell.
• 16:38
  SPEAKER_00: And then our team have pulled together a summary report as well.
• 16:42
  SPEAKER_00: That's also available.
• 16:43
  SPEAKER_00: They're both on our website, of course, at dairynz.co.nzlash levy.
• 16:49
  SPEAKER_01: Brilliant.
• 16:49
  SPEAKER_01: So there you have it.
• 16:50
  SPEAKER_01: There's some solid numbers showing where your levy investment's been going and what it's been returning.
• 16:56
  SPEAKER_01: A couple of things that stood out for me that 26 cents per kilo return, that's more than seven times your money back.
• 17:03
  SPEAKER_01: And also that commitment to keep measuring and improving how the levy's invested and keep up that transparency.
• 17:10
  SPEAKER_01: Both the full report and a summary are available at dairynz.co.nz forward slash levy if you want to dig deeper.
• 17:18
  SPEAKER_01: There's some interesting detail in there about projects you might not realise your levy has been funding.
• 17:23
  SPEAKER_01: Thanks to Tracy and Alan for walking us through this today.
• 17:27
  SPEAKER_01: Thanks for listening and we'll catch you next time.
• 17:29
  SPEAKER_01: A tewa.
• 17:36
  SPEAKER_01: If you'd like to get connected with DariNZ's latest advice, research, tools, and resources, whether it's reading, scrolling, listening, or in person, you can visit dairynz.co.nz forward slash get connected, and don't forget to hit follow to keep up to date with our latest episodes.
• 17:53
  SPEAKER_01: As always, if you have any feedback on this podcast or have some ideas for future topics or guests, please email us at talkingdairy at dairynz.co.nz.
• 18:03
  SPEAKER_01: Thanks for listening and we'll catch you next time on Talking Dairy.