#1Tasmania Delivers... 15 The dairy industry in Tasmania A guide for investors January 2019 www.cg.tas.gov.au Tasmanian Government#2ii The dairy industry in Tasmania 2 Tasmania 4 - a unique island of opportunity The Tasmanian dairy industry - history 5 The Tasmanian dairy industry - the industry today 10 Value proposition 18 Indicative costs of buying a dairy farm in Tasmania 26 Dairy conversion opportunities 32 Investment regulations and business entry 33 Assistance for investors ST A guide for investors Contacts This marketing document was developed by Dairy Tas in collaboration with the Office of the Coordinator-General and the Department of State Growth. Disclaimer: The information in this paper has been prepared with care, but no warranty is given as to the accuracy of the information, or for any advice given, or for omissions from this paper. Readers rely on the information at their own risk and should seek their own independent legal and financial advice. State of Tasmania January 2019. Images courtesy of Dairy Tas, Chris Crerar, Simon de Salis, Tony Crehan, Mitch Osborne, Adam Gibson, Biosecurity Tasmania, Peter Mathews, Clint & Bethanie Creative, Bjorn Qarfordt - DeLaval, Tourism Tasmania and Rob Burnett Key reasons for investing in the Tasmanian dairy industry: ≫ significant scope for profitable expansion of low-cost milk production could see Tasmania's milk output almost double to 1.5 billion litres per year >> a growing industry - Tasmanian milk production increased by around 38 per cent over the past 10 years' >> substantial factory investment has occurred, providing major support for new dairy farm investment >> Tasmania's environmental advantages comparative natural water advantage, irrigation investments, absence of major animal diseases and an ideal climate for pasture-based dairy production ≫ international and national market recognition of the quality of Tasmanian dairy products » increasing global demand for dairy products >> low production costs through pasture-based farming » highly competitive land prices - land values in Tasmania are lower than many other Australian states and dairying areas in New Zealand, with the north west, north east, Upper Derwent Valley and Meander Valley regions all offering opportunities for investment >> a higher return on total assets than other Australian states, increasing from 3.6 per cent to 5.1 per cent YE 16/172 » opportunity to capitalise on climate change driving Australian milk production to cooler, wetter parts of the country >> forecasts for a climate-changed world point to a long term and profitable future for the Tasmanian dairy industry³ » first world infrastructure and a well-organised, cohesive dairy industry sector with clear, demonstrated capability that includes multinational, national and Tasmanian dairy manufacturing companies operating both large and small processors. 1. Dairy Tasmania milk produce and price YE Dec 2018 2. Dairy Australia Situation and Outlook October 2018-provisional data 3. Antarctic Climate and Ecosystems CRC, Climate Futures for Tasmania, Impacts on Agriculture http://acecrc.org.au/ climate-futures-for-tasmania/#3The dairy industry in Tasmania 2 Tasmania - a unique island of opportunity Tasmania's temperate climate, fertile soils, reliable rainfall and sunshine all ensure excellent growing conditions for lush pasture, underpinning the production of premium quality dairy products. Tasmanian dairy cows are housed outside all year round, grazing on grass and clover, while enjoying some of the cleanest air in the world. Discovered by Dutch explorer Abel Tasman in 1642, Tasmania is Australia's only island state and is separated from mainland Australia by Bass Strait, a 240 kilometre stretch of water. The state's area is 68 330 square kilometres with 3 300 kilometres of coastline, making Tasmania approximately one quarter the size of its neighbouring Australian state, Victoria. Tasmania is similar in size to Ireland and Sri Lanka, and half the size of Fujian Province in China. The dairy industry is the largest sector of Tasmania's agricultural industry and a significant contributor to the Tasmanian economy. It offers a number of investment opportunities, including large-scale pasture-based milk production, specialty cheese manufacture and large-scale dairy commodity processing. Tasmanian dairy farmers benefit from a sustainable, low-cost, pasture-based production system, underpinned by reliable rainfall and increasing irrigation infrastructure. This translates to lower costs of production, considerable growth potential and a more reliable milk supply, when compared with many dairy districts both in Australia and internationally. The dairy industry is a priority sector with excellent growth prospects and the Tasmanian Government encourages investment in milk production (farming) and value adding within the state. A guide for investors 3 Tasmania at a glance Location Climate Government Population Capital city Major industries Community and lifestyle History and heritage Located broadly at latitude 41-42° south and longitude 144° east, and separated from the Australian continent by Bass Strait. Tasmania is a group of over 300 islands, with the main island being 315 km (180 miles) from west to east, and 286 km (175 miles) north to south. Tasmania has a mild, temperate maritime climate with four distinct seasons, making it the ideal location for production of premium food and wine. In summer (December to February), the average maximum temperature is 21° Celsius (70° Fahrenheit). In winter (June to August), the average maximum is 12° Celsius (52° Fahrenheit) and the average minimum is 4° Celsius (40° Fahrenheit). Tasmania is a parliamentary democracy governed according to the principles of the Westminster System. Since 1901, Tasmania has been a state of the Commonwealth of Australia. At December 2017, the estimated resident population of Tasmania was 528 097. The capital of Tasmania is the city of Hobart. The greater Hobart area has a population of approximately 229 088 people. The major industries are food and agriculture (including dairy, wine, salmon, fruit, vegetables and red meat), tourism, mining and mineral processing, forestry and related products, specialist manufacturing, research and science, Antarctic-related industries, building and construction, renewable energy, and information and communications technology. Tasmania's rich natural heritage, its diverse range of arts and cultural experiences, its lifestyle opportunities and its public spaces are advantages that help to make the state one of the world's most liveable places. Aboriginal people are thought to have first moved onto the island 30 000 years ago, during an ice age which exposed a land bridge between the island and mainland Australia. Europeans from the British Isles established a penal colony in 1803. During this time, the island was called Van Dieman's Land. The transportation of convicts ended in 1853 and the island was renamed Tasmania in 1856. AUSTRALIA King Island Flinders Island Stanley Burnie Devonport Launceston Tasmania Bicheno • Queenstown Strahan Swansea⚫ Hobart⚫#4The dairy industry in Tasmania 4 The Tasmanian dairy industry - history A guide for investors The Tasmanian dairy industry - the industry today WELCOME TO LEGENDAIRY COUNTRY 5 Since European settlement in 1788, the production of milk has been a key industry within Australia's agriculture sector. From the original four cows and one bull brought out with the First Fleet, the industry continued to expand as more parts of Australia were explored. Dairying in Tasmania began with farmers converting thickly wooded landscapes to farming land. In the early to mid-1800s, Tasmanian farmers milked a few cows for their own use, with any surplus sold for cash or exchange of other commodities. It wasn't until Tasmania's first cooperatively owned butter factory, the Table Cape Butter and Bacon Factory, was established in Wynyard in 1892 that the commercial dairy industry began to grow. The Table Cape cooperative, modelled on a successful Victorian operation, was closely followed by others including the North West Cooperative Dairy Company, the Duck River Cooperative Butter and Bacon Factory in Smithton, and the Ringarooma Cooperative in the north east. In addition to the dairy cooperatives, up to 20 private factories operated in the Circular Head region at various times from 1893. In the early 20th Century, the introduction of refrigeration allowed dairy products to be transported to markets, and native pastures were replaced with more productive exotic species. This enabled farmers to increase stocking rates, resulting in a dramatic increase in milk production from the available land. Another factor that encouraged rapid growth in the dairy industry was the introduction of the milking machine into Australia. In the late 1930s, once electricity became more readily available to farms, milking by machine was adopted as the norm and farmers were able to increase their herd sizes as the machines reduced the time needed to milk their cows. The early 1970s saw the merger of Tasmanian dairy cooperatives, with Table Cape and Duck River being the first to form United Milk Products. In 1981, United Milk Products amalgamated with north western and north eastern cooperatives to form United Milk Tasmania (UMT). Up until 1997, UMT operated three main production sites at Wynyard (cheese), East Devonport (milk powders and butter) and Legerwood (milk powder). A new site was built at Spreyton in 1997 and the Legerwood and East Devonport operations were closed soon after. Bonlac Foods took over UMT in the late 1990s and subsequently, the world's largest dairy exporter Fonterra acquired the operation in 2004. Today's dairy farms are usually large-scale, capital-intensive operations using the latest technology to produce whole milk with approximately three per cent of farms using automated milking systems. Cows are milked up to twice daily, in large dairy sheds which can milk over 250 cows per hour. Alternative systems operate that allow multiple herds to be milked through single dairy sheds. Other options are milking three times every two days, or once per day. Deregulation of the Australian industry in 2000 and a growing export focus, have seen production increase in the more temperate, higher-rainfall areas of Australia, like Tasmania, that are more suited to low-cost, pasture-based dairy farming. Over recent years there has also been an increase in the number of small-scale dairy and cheese-making operations in Tasmania, as more operators move into adding value to their business. Between 2012 and 2014, processing capability grew by 300 million litres due to investment in new factories by Lion in Burnie and the Murray Goulburn Co-operative in Smithton. Over the next 10 years, milk production has the potential to grow from 913 million litres per year in 2016-17 to around 1.5 billion litres per year, dependent on continued investment in additional processing capacity and farm conversion. The major dairy processing companies now operating in Tasmania are Fonterra, Saputo, Lion and Mondelēz (Cadbury). Others include Ashgrove Cheese, Dutch Mill, Pyengana Cheese, Westhaven Dairy, Bruny Island Cheese, Wicked Cheese Co, Grandvewe and Betta Milk. Dairy is now Tasmania's biggest agricultural industry. In 2016-17, the estimated value of farm milk production was around $325 million. The value of packed and processed products in 2016-17 was approximately $474 million4. The National Dairy Farmer Survey measures industry confidence as the proportion of farmers who are positive about the future of the industry. The survey results highlight the very different levels of confidence between dairying regions. Early 2018 results indicate that 74 per cent of Tasmanian dairy farmers are more positive towards their own business future than any other state in Australia. More farms in Tasmania are increasing their herd size, staff and supplementary feed levels compared with 12 months ago. The number of farms that are undergoing this level of expansion is considerably higher than counterparts from other Australian dairy regions (38 per cent national) 6. 4. DPIPWE, Dairy Industry Scorecard, 2016-17. 5. Dairy Australia Situation and Outlook October 2018 6. Dairy Australia Situation and Outlook June 2018#56 The dairy industry in Tasmania Prime dairy regions King Island Far North West North East North West Central North 42°S South DeLaval A guide for investors Tasmanian milk production (ML) and milk price ($/kg milk solids) 2008-18 $4.00 $8.00 913 891.4 883 835.4 $7.00 800 792 765 80 $6.96 709 726 $6.33 $6.00 700 677 $5.91 $5.51 $5.60 $5.61 600 $5.00 $5.19 $5.16 $5.20 $4.64 2008-9 Table 1: Tasmanian dairy farms by region Council area Circular Head Region Farms Far North West Region 141 Meander Valley Dorset Wynyard-Waratah Central North Region North East Region North West Region 55 253 70 Central Coast North West Region 27 Kentish North West Region 19 King Island King Island 10 Burnie Break O Day North West Region 10 Dairy industry summary >> 412 farms >>140 000 cows » Average of 336 cows per farm >> I 500 people employed on farms 913 million litres of milk in 2017-18 >> Average annual growth in 1000 900 Milk production 500 400 10 years of three per cent North East Region 9 300 Northern Midlands Central North Region 9 >>9.3 per cent of national 200 West Tamar Central North Region production 100 Central Highlands Latrobe Launceston Southern Region North West Region 5 >> Total value of dairy farm gate 0 5 income $386m 2015-16 Central North Region 3 Huon Valley New Norfolk Sorell Southern Midlands Total farms Source: TDIA dairy licence data June 2018 Southern Region 4 Southern Region 2 Southern Region Southern Region 412 7. DairyTas and Dairy Australia data 2009-10 2010-11 2011-12 2012-13 2013-14 Production, million litres Milk price, $/kg milk solids Source: DairyTas 2018, based on data from Dairy Australia. 2014-15 2015-16 2016-17 Milk price, $/kg milksolids $3.00 $2.00 2017-18 $1.00 $0.00#68 The dairy industry in Tasmania cams cams CAUTION 00-0 A guide for investors 9 Major Investors: Ashgrove Ashgrove Cheese is Tasmania's and one of Australia's largest family owned and operated dairy processors. Under the Ashgrove Tasmanian Farm brand they produce fresh milk, cheese, cream and butter. The dairy portfolio also includes the Elizabeth Town Creamery brand which specialises in the selection, packing and distribution of portion control cheese. The Ashgrove processing facility is surrounded by the Ashgrove Dairy Farm at Elizabeth Town in Northern Tasmania, which includes a popular on-site retail factory and farm store. In 2017, the Ashgrove factory was certified by NASAA Organic: Australian and International Organic Certifier to process organic milk into premium value Tasmanian organic dairy products. www.ashgrovecheese.com.au Betta Milk Betta Milk Co-op Society Ltd produces fresh milk products (milk, cream and custard) and has around 30 per cent of the local market for those products. It uses about two per cent of Tasmania's total milk production but does not buy milk directly from farms. It has a processing facility at Burnie and in 2017 won a gold medal for its full cream milk product at the Dairy Industry of Australia awards. www.bettamilk.com.au Dutch Mill Dutch Mill is one of Thailand's largest dairy companies. Since 2017, it has owned the UHT milk processing factory at Edith Creek in north-west Tasmania that was formerly operated by Murray Goulburn. www.dutchmillinternational.com Fonterra Fonterra is a global dairy company involved in large-scale milk procurement, processing, marketing and management. Fonterra is the largest processor of milk in the world, with a supply chain spanning over 140 countries and producing more than two million tonnes of dairy ingredients, valued- added and specialty ingredients, and consumer products every year. In Australia, Fonterra operates seven manufacturing sites, including two in Tasmania at Wynyard and Spreyton. In Tasmania, Fonterra has more than 200 suppliers and processes approximately 55 per cent of the state's milk, producing approximately 60 000 tonnes of cheese, milk powders, butter and lactose. www.fonterra.com Lion Lion is a wholly owned subsidiary of Kirin Holdings. Lion's Tasmanian interests include cheese and drinking milk production, and a brewery. The dairy portfolio includes a number of market-leading brands across the milk, cheese and dairy product categories. Lion processes around 14 per cent of the total Tasmanian milk production and recently invested over $150 million to consolidate Australian specialty cheese production at Burnie and to upgrade its award-winning King Island factory. www.lionco.com www.kirinholdings.co.jp Mondelēz (Cadbury) Mondelēz owns and operates Cadbury, a global confectionery business. Mondelēz's operation includes a milk drying plant in the state's north west at Burnie and a chocolate manufacturing plant in the south at Claremont. Mondelēz uses around eight per cent of Tasmania's total milk supply. www.cadbury.com.au www.mondelezinternational.com.au Saputo Saputo is a multinational dairy company based in Canada, which has operated a milk powder plant since 2018 in Smithton, north-west Tasmania. The plant is designed to manufacture high-specification milk powders and associated products, with a capacity of approximately 250-300 million litres per year. www.saputo.com#7The dairy industry in Tasmania 10 Value proposition A guide for investors Water availability A key component of sustainable agriculture is the availability of reliable water supply for irrigation. Dairy stocking rates are directly linked to the availability of water and Tasmania's most significant natural resource advantage is water. Tasmania does not have the water supply constraints experienced in other parts of Australia and much of the world. Tasmania represents one per cent of Australia's land mass, yet has 27 per cent of Australia's freshwater dam storage capacity. An ongoing priority in Tasmania is the completion of major irrigation schemes, with the potential to double the water available for irrigation. The Australian and Tasmanian Governments have committed $220 million to develop irrigation schemes with at least 95 per cent reliability of water supply, in partnership with local communities around the state. Private sector investment of around $93 million is also anticipated, which will double the amount of irrigable land available for production purposes. A comprehensive list of all current Tasmanian irrigation projects can be found at: www.tasmanianirrigation.com.au Farm irrigation Tasmanian dairy farmers are increasingly using irrigation to supplement rainfall and maintain pasture production through summer and early autumn. Mostly this is based on farm schemes utilising winter storage or direct take from rivers and, in some areas, groundwater also contributes to the total supply. Irrigation water requirements Irrigation water requirements depend on soil type, climate, soil fertility and pasture species. The estimated annual irrigation requirements for well-managed perennial ryegrass dairy pastures are shown in the table below. Irrigation of well-managed dairy pasture with high soil fertility is likely to increase pasture utilisation by three to four tonnes of drymatter per hectare per year, and this will typically require around four megalitres per hectare per year of water to be applied. Tasmania is in a unique position within Australia for increased investment in dairy farming. The state's expanding milk processing capacity offers opportunities and Tasmania's climate and water availability ensure consistent and predictable production rates. Climate Tasmania has an optimal climate for pasture-based dairying. Tasmania has a temperate climate, fertile soils, reliable rainfall and plenty of sunshine, all of which ensure excellent growing conditions for lush pastures that support the production of premium quality products. Modelling undertaken through the Climate Futures Tasmania project to 2040 and the Dairy Businesses for Future Climates project has shown Tasmania will remain globally competitive for perennial ryegrass production, the pasture that underpins the dairy industry of Southern Australia. King Island Flinders Island 800-1000 Rainfall Smithton Wynyard 1400 Burnie 1600 2000 2200 Millimetres of precipitation per year 2400 Devonport 1800 ⚫George Town 1000 800 Scottsdale 20 Deloraine ⚫Launceston 800 600 1200 Queenstown 1800 1400 1000 800 Campbell Town New Norfolk Huonville Hobart Table 2: Indicative irrigation requirements Region Location Irrigation requirement (ML/ha/year) North West Burnie 4.6 700-800 Currie (King Is.) 4.0 Mawbanna 2.6 Redpa 2.7 Sheffield 4.2 Smithton Woolnorth 3.9 Bicheno Wynyard www 3.0 3.9 North Cressy 5.3 Deloraine 4.7 Lilydale 4.5 Mole Creek 4.1 Ringarooma 3.5 Scottsdale 4.1 South Bushy Park 4.8 8. Water requirements of annual crops. Source: VW Maps O2009 Martin von Wyss, VW Maps Pty Ltd. Source: Macquarie Franklin, Farm Irrigation, January 2012 DPIPWE, Feb 2012.#812 The dairy industry in Tasmania Land affordability Tasmania has traditionally had lower land prices than comparable dairy areas in Victoria and New Zealand. The tables below summarise dairy farm sales over the period 2015 to 2016. Dairy Tas has more detailed survey data available in addition to Table 3 below. There is a noticeable increase in size of farms sold and in the per hectare values, particularly in Circular Head and north west regions. O Dairy farm sales analysis: 2015-16 Table 3: Farm area and total value 837 A guide for investors 13 Stock prices The cost of livestock represents a significant proportion of the total investment in dairying. Dairy stock prices vary over time depending on a range of factors, including: >> milk prices Region Number of farms analysed Farm area Farm price Dry land Irrigated Bush / Total Land Improvements' Total pasture pasture waste (ha) (ha) (ha) (ha) ($m) ($m) ($m) Circular Head 12 130 67 18 214 2.74 0.98 3.72 North West сл 66 40 31 136 1.46 0.62 2.08 North 4 81 44 16 141 1.54 0.60 2.14 North East 3 130 114 19 263 2.19 0.80 2.99 All dairy farms 24 109 63 20 192 2.20 0.82 3.02 >> breed 1. Includes irrigation equipment. >> production history Source: Opteon, June 2017 Per effective ha Total farm³ > time of calving >> seasonal conditions. Cow prices can vary by as much as 40 per cent from one season to another. The prices quoted in the table below are a reflection of the 2016-17 situation. Prices and demand for export dairy stock vary depending on export orders. Export stock must meet relevant selection criteria. Dairy stock that do not meet export selection criteria are subject to local prices. Table 4: Per hectare values Region Number of farms Value per ha Dry land Per total ha Irrigated Improvements² Total farm² analysed pasture pasture' ($/ha) ($/ha) ($/ha) ($/ha) ($/ha) Circular Head 12 12 729 16 150 4 572 18 052 18 983 North West North 5 II 600 16 820 4 576 17 446 21 170 4 10 375 14 475 4212 15 787 17 260 North East 3 7 131 || 852 3 030 || 877 12 373 All dairy farms 24 11 402 14 908 4 264 16 776 18 325 Time of calving 1. Includes infrastructure and water. 2. Total value divided by total farm area - including bush/waste. 3. Total value divided by effective area (dryland plus irrigated pasture). Source: Opteon, June 2017 Note: Figures shown in the tables above are based on averages of the farms sold over the period. The per hectare values are calculated from the per farm average value and size and averaged from the farms sold in the region. With the vast majority of the herds in the state calving in the spring, it is often difficult for autumn-calving farms to source cows. Traditional autumn-calving farms favour straight-bred Friesian cows and generally run closed herds. Production history Herds with production history, either at the factory or on the basis of farm herd recording, tend to achieve higher prices. However, per cow production level is more closely related to feeding (including concentrates) than it is to breeding. The size of heifers at first calving is also important. Breed Friesian cows have traditionally been more expensive than crossbred or Jersey cows. In recent years, some dairy farmers with Friesian herds have been able to sell replacement heifers at premium prices to China. At present exporters are buying Friesian heifers as calves and yearlings. Export markets occasionally exist for Jersey and crossbred heifers. Table 5: Stock prices 2016-17 Type of stock Also Friesian cull cows are worth more than Jerseys. However, there appears to be little economic justification for the difference in cow prices between Friesians and Jerseys. No relationship has yet been determined between breed and financial returns. In recent years there has been a significant shift to crossbred cows, in an attempt to correct herd health and fertility problems associated with large high-producing pure-bred Friesians. Production Jersey Crossbred Friesian level (kgMS/hd) ($/hd) ($/hd) ($/hd) Dairy cows Spring calving >550 kgMS | 700 >350 kgMS | 300 | 400 | 500 <350 kgMS 1 000 | 100 1 200 Autumn calving >550 kgMS | 700 >350 kgMS <350 kgMS | 300 1 400 1 600 1000 | 100 1 250 Yearling heifers Local market Export market Heifer calves Local market Export market Bulls 600 750 900 1 000 | 200 350 500 650 900 1 700 | 300 Source: Macquarie Franklin, Stock Prices, 2016-17#914 The dairy industry in Tasmania A guide for investors 15 Dispose or declare wbying of these reisen she spot Plantaria Fruit and vegetables Seafood, me soll and weeds Dispose of these Dispose of items here Agistment rates Dairy farmers in Tasmania often agist young stock and dry cows off the main farm, in order to maximise the number of cows milked. Agistment rates for young stock vary. The quality of the job may also vary. It has become popular for replacement heifers to be agisted on a weight gain basis, in order to reward the agistment farmer for the result achieved and to encourage the production of well grown heifers. The price paid for winter agistment of dry cows can also vary depending on location and season. Generally the cost will increase as the amount of feed allocated daily to the cow increases. The cost of transport to and from an agistment property should also be taken into account. Thank you! For helping us protect Tasmania Typical costs for budgeting purposes are outlined below. In some cases, yearling heifers are charged on a weight gain basis until April/May and then go on to a per week basis of $13.50-$22.00 per head. Table 6: Typical agistment costs Type of stock Cows Yearling heifers Calves to 12 months Bulls Dispose or declare Dispose or declare restricted i Penalties apply Some of the variation in agistment rates is due to the inclusion, or not, of animal husbandry practises such as drenching and mineral supplementation. The stock owner bears the cost of any drenches, mineral supplements and health treatments. Per week $15.00-$22.00 $10.00-$13.50 Per kg liveweight gain NA $7.00-$9.10 $10.00 $1.50-$1.70 $1.40-$1.60 NA Source: Macquarie Franklin, Agistment Rates, 2017 Biosecurity As an island state, Tasmania has a clear biosecurity advantage. Tasmania's biosecurity system is at the very core of the Tasmanian brand, as its natural environmental values and quality produce rely upon the state's relative freedom from pests, diseases and weeds. The state is free of foot and mouth disease and bovine spongiform encephalopathy (BSE). Research and development The Tasmanian Government, industry and the Tasmanian Institute of Agriculture (TIA), work together to undertake research and development programs. These are designed to address agricultural productivity, safe food production and social and natural resource management issues. TIA is home to the Dairy Centre, which provides dairy research, development and extension of international standard. The Dairy Centre maintains a close working relationship with Dairy Australia and DairyTas, and includes areas of work such as the following. >> Extension program for dairy farmers. >> Feed production - the production and consumption of pasture crops, grazing and harvesting management, water use efficiency and nutrient requirements. >> The factors affecting milk production - supplementary feeding, feed conversion, body tissue mobilisation, milking frequency, genetic merit and developmental epigenetic effects. » Management of the dairy environment - synchronisation of fertiliser use with weather conditions, plant demands and soil properties, nutrient budgeting and management, and improvement of catchment water quality. The TIA Dairy Research Facility at Elliott is a fully operational 340 head dairy farming operation and is home to structured experiments on a wide range of key industry issues. Infrastructure Transport and travel Tasmania has well-developed transport systems, encompassing sea, land and air travel. These provide fast and efficient links between the major Tasmanian centres, mainland Australia and international markets. Each week, approximately 600 flights carry passengers and airfreight into and out of the state. Qantas, Jetstar, Virgin Australia and Tiger Airways all fly into the state from many mainland cities, including direct flights from Sydney, Melbourne and Brisbane. A dedicated freight rail system provides transport for bulk freight. Tasmania has a comprehensive road system linking all of its major cities and towns, which provides access to rural areas suitable for dairying. The relatively short distance between major centres and rural areas allows for commuting with minimal traffic congestion. The state possesses four deep-water sea ports, located in Hobart, Burnie, Devonport and Bell Bay. There are regular shipping services linking Tasmania to Asia, Europe, the Middle East and North America, via other Australian ports. Two passenger, vehicle and freight ships, Spirit of Tasmania I and II, provide daily sailings across Bass Strait, linking the north west city of Devonport to the Port of Melbourne. Energy options Tasmania's energy network complements the state's natural environment. The majority of Tasmania's energy is supplied by renewable hydroelectricity. An undersea power cable linking Tasmania with Victoria has provided further competition to the Tasmanian energy market and allows electricity to be exported during high-priced peak demand periods, while still meeting the needs of electricity customers in Tasmania. Natural gas is delivered via a gas pipeline connecting Tasmania to mainland Australia. This provides greater choice, flexibility and reliability of energy supply to a multitude of customers. Tasmanian businesses and residents are guaranteed a safe, clean and reliable energy source. Importantly, the supply of energy to Tasmania has never been interrupted by industrial action. Sensing Tasmania (SenseT) The SenseT project will see the development of an integrated sensor network across Tasmania for live, online climate monitoring. The network will mesh together historical, spatial and real-time data, and make it available through the web. SenseT has potential application in dairying through localised weather observations and tools to minimise weather-related risk. It also has the potential to monitor stock movements, especially useful with the new robotic milking which is currently being trialled in the state. There is also potential to monitor pasture moisture content, in order to highly refine optimum stock conditions. www.sense-t.org.au Adaptive, flexible and innovative workforce Tasmania has a strong agricultural tradition, with skilled and innovative primary producers, processors and service providers. The Tasmanian workforce is readily able to adapt to meet demand and can offer investors stability, with an excellent industrial relations record. Tasmanian training providers work with local industry to ensure that industry training needs are met. They actively design national and international training programs for accreditation and ensure that high-demand skills are created within the state.#1016 The dairy industry in Tasmania A guide for investors 17 Government support The Tasmanian Government is putting the state's primary industries on the path to achieving a tenfold increase in the value of the sector by 2050. It recognises that the development of the dairy industry is important to the economic future of Tasmania and encourages potential investors to investigate the benefits of dairy production and value adding in the state. Office of the Coordinator-General The Office of the Coordinator-General is the Tasmanian Government's principal entity to attract and support investment, which provides free confidential services and professional advice to investors. www.cg.tas.gov.au Department of Primary Industries, Parks, Water and Environment The Department of Primary Industries, Parks, Water and Environment (DPIPWE) is responsible for the sustainable management and protection of Tasmania's natural and cultural assets for the benefit of Tasmanian communities and the economy. DPIPWE's activities inform the use and management of Tasmania's land and water resources. The department is also responsible for delivering the services that support primary industry development and for the protection of the state's relative disease and pest-free status. www.dpipwe.tas.gov.au Tasmanian Institute of Agriculture The Tasmanian Insititute of Agriculture (TIA) works closely with its partners in government and industry to improve the performance of Tasmania's agricultural sector, across all industries and value chains. TIA is recognised nationally and internationally for its research excellence. It partners strategically with many other organisations around Australia. Internationally, TIA is rapidly increasing its research portfolio, influence and student numbers. www.utas.edu.au/tia TIA's Dairy Centre provides research services and support to the dairy industry. A website dedicated to informing the Tasmanian dairy industry about TIA's activities offers a host of resources and tools for innovative dairy farmers. www.utas.edu.au/tia/dairy-grains-and- grazing/dairy Industry support DairyTas 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, promote, facilitate and leverage opportunities for research, development and extension activities in the Tasmanian dairy industry, which will assist dairy farmers to manage change. The DairyTas Board seeks to encourage the development of a sustainable and dynamic dairy industry in Tasmania that offers economic and social rewards to dairy farmers and those in the wider community. DairyTas provides small project grants to assist regional groups, industry and advisors with local projects for the dairy industry. www.dairytas.com.au Tasmanian Farmers and Graziers Association (TFGA) The Tasmanian Farmers and Graziers Association (TFGA) is Tasmania's farmer organisation, representing over 5 000 members who live and work on farm businesses across Tasmania. The TFGA is an active lobby group that is owned and governed by farmers, for farmers. Since its formation in 1948, the TFGA has generated substantial benefits for the agriculture sector. The TFGA consists of five commodity groups Dairy, Meat, Wool, Agriculture and Vegetable - as well as a number of committee groups including Cereal and Seeds, Poppies, Environmental Policy, Climate Change, Game Management, Native Vegetation, Water, Weeds and Forestry. TFGA members lead each of these groups and regularly work with Australian and Tasmanian Governments on the wide range of issues that impact modern farming. www.tfga.com.au Tasmanian Irrigation To capitalise on Tasmania's comparative water advantage, Tasmanian Irrigation Pty Ltd (TI) was established as a state- owned company to progress a suite of regionally significant irrigation schemes. TI's board and staff provide the technical, financial and project management skills to take a $310 million suite of irrigation schemes from concept, through feasibility, detailed design and approval stages, to construction and operation. Tl schemes are demand-driven and constructed as public-private partnerships, to which the Australian Government is contributing $140 million, the Tasmanian Government $80 million and the private sector $90 million, through the purchase of fully tradeable water entitlements to particular schemes. Schemes developed by TI deliver water at 95 per cent reliability. A significant amount of this new irrigation will water dairy pastures around the state. www.tasmanianirrigation.com.au LING ISLAND DAIRY SPREMIUM QUALITY DAIRY PRODUCE DISCOVERY ASH BLUE The Tasmanian brand Tasmania is globally recognised for its pristine environment, as a tourist location of historical and environmental significance, and as a producer of high-quality food and wine. Tasmania is an island of difference. Its people are resourceful, applying the kind of creativity that arises from geographical isolation to their business activities, scientific research and artistic endeavours. Tasmanian businesses are world leaders in many areas of specialisation, including large-scale, high-speed catamarans, marine evacuation gear, high- performance radio antennae and aquaculture equipment. The state is a natural larder, with clean air, unpolluted water and rich soils giving rise to the production of 100 varieties of specialty cheeses, as well as milk powders, butter and other dairy products. It also produces rock lobsters, oysters, scallops and abalone, Atlantic salmon, beef, premium beers, leatherwood honey, mineral waters, fine chocolates, fresh berries and stone fruits, apples, vegetables and award- winning cool-climate wines. Other export products include essential oils such as lavender, pharmaceutical products and premium wool that is sought after in Europe and Asia. www.brandtasmania.com Exports and licensing International dairy exports from Tasmania totalled $141 million in 2016-17, with the largest contributor being powdered full cream and skim milk valued at $95 million. Exports were predominantly made up of milk powder and cheese. The Tasmanian Dairy Industry Authority (TDIA) is responsible for the food safety licensing, inspection and auditing of dairy processors and dairy farms. www.tdia.tas.gov.au Tasmania has food processing facilities that are export licensed and Halal certified, which comply with the most stringent food safety requirements. Exporting from Australia also requires a licence from the Australian Government Department of Agriculture (DAFF). www.agriculture.gov.au/export/ controlled-goods/dairy 9. Tasmanian Agri-Food Scorecard 2016-17, DPIPWE#11The dairy industry in Tasmania A guide for investors 18 Indicative costs of buying a dairy farm in Tasmania Table 7: Farm descriptions Cows milked Number 250 500 750 1 000 Farm area 20 unit HB Replacements carried on-farm 50 unit rotary 50 unit rotary 50 unit rotary Total farm area ha 140 270 380 500 Total effective area ha 115 230 340 450 Irrigation area (50 per cent) ha 58 115 170 225 Milk production Per cow kgMS 400 390 390 380 Total kgMS 100 000 195 000 293 000 380 000 Pasture consumed Irrigated area tDM/ha 12.0 12.0 12.0 12.0 Dryland area tDM/ha 7.0 7.0 7.0 7.0 Average tDM/ha 9.6 9.6 9.6 9.6 Grain fed per cow t/cow 0.9 0.9 0.9 0.9 Labour required Total units FTE Cows per labour unit Cows/FTE w 3.0 83 100 58 5.0 6.5 8.0 115 125 Buying an operating dairy farm is the way most people choose to enter the industry. From that point onwards there are several options for expansion: >> increase output on the current farm >> share farming >> buy extra land >> sell up and buy a larger or more productive farm. This section outlines indicative budgets for the purchase and effective running of a dairy farm business in Tasmania, at the present time. Farms for sale may range in size from around 150 cows to in excess of 1 000. It is generally accepted that a minimum herd size of around 200-250 cows is required for a business to be fully viable at the present time. If past trends continue, this number may increase over time. Depending on a range of factors, actual financial performance may be better or worse than the examples outlined. Prospective investors should consult widely before deciding on a specific farm. A list of useful industry contacts has been provided on the back cover. Farm description Managerial ability is the key factor in determining financial performance. The model farms here assume that management ability is above average. The main profit drivers for dairy farms in Tasmania are: pasture utilisation (and stocking rate) >> labour efficiency >>> milk price. Management has a major role in both pasture utilisation and labour efficiency. It can also affect milk price to some degree, through decisions on time of calving, milk company chosen and by its impact on milk quality. Pasture utilisation is a key profit driver. The model farms outlined below are assumed to have 50 per cent dryland and 50 per cent irrigated pastures with an average pasture consumption of 9.5 tonnes of dry matter per hectare. This is a reasonable average and should be achievable on most farms with good soil fertility and good pasture composition. The main assumptions are outlined in the table on the following page. Bare land value $ per ha $14.000 $14.000 $14.000 $14 000 $ per ha $21 000 $21000 $21 000 $21 000 Dryland Irrigated' Capital investment Land and improvements $ million $2.61m $5.47m $7.53m $9.88m Stock $ million $0.45m $0.89m $1.34m $1.74m Plant and machinery $ million $0.19m $0.22m $0.25m $0.38m Working capital $ million $0.11m $0.19m $0.27m $0.35m Total capital $ million $3.36m $6.78m $9.39m $12.34m Per total ha $ per ha $24 100 $25 200 $24 800 $24 700 Per effective ha $ per ha $29 300 $29 500 $27 700 $27 500 Per cow $ per cow $13 500 $13 600 $12 600 $12 400 Milk price Average for season $/kgMS $5.15 $5.20 $5.20 $5.20 I. Includes water and fixed irrigation infrastructure. Not including centre pivot, long laterals or other. Source: Macquarie Franklin, April 2017 19#1220 20 The dairy industry in Tasmania A guide for investors 21 As Table 4 (page 12) indicates, farm prices can vary considerably. The values included in the indicative costs of buying a dairy farm are representative of better farms sold in Tasmania the past few years. They assume a bare-land value of $14 000 per hectare for dryland and $21 000 per hectare for irrigation area (including water and underground mains and other costs). On the assumptions here, there is limited reduction in capital cost per hectare or per cow as farm size and cow numbers increase. Any reduction is likely to come from spreading the cost of the milking facility over additional hectares/cows, especially with a rotary dairy (for example, 500 cows versus 750 cows). On the other hand, the 250 cow farm has a relatively low-value herringbone shed included in its improvements and so has an overall capital per cow similar to the larger 500 cow farm with a rotary dairy. The average milk price is assumed to be around $6.00 per kg milk solids, which is below where prices are currently, but are in line with the longer term trend. They are shown to increase by 5c per kg milk solids, between the 250 cow farm and the other farms. The actual increase based on quantity premiums should be higher than this, but milk quality also needs to be taken into account and it can be difficult to maintain standards with larger herds. Pasture utilisation Pasture utilisation is the most significant driver of profit in Tasmanian pasture-based dairy systems. Typically the best results are achieved by paying close attention to the pasture supply and demand situation, and making astute decisions about grazing management and supplementary feeding. Increasing pasture utilisation by one tonne of dry matter per hectare (10 per cent) can make a significant difference to overall profitability. Training in grazing management is available through the Tasmanian Institute of Agriculture (TIA) and assistance in on-farm implementation and monitoring is available from private consultants. Labour use Labour and feed are the most significant cost inputs. Within the model farms, full time equivalents (FTE's) have been used to define labour requirements. This is the number of employees (including the manager) required to run the farm, based on a 38 hour week. The budgets assume that all labour (including the owner/ manager) is fully paid for. In most instances, significant increases in disposable income can be achieved if owners or share farmers elect to take on a greater proportion of the work. Labour use efficiency is generally measured as the number of cows milked per FTE. The average is around 80 to 90 cows per FTE, but well-set up farms can exceed 100 cows per FTE. Generally as farm size increases there are labour efficiencies. These may continue to increase with herd sizes up to 1 200 cows. Table 8: Wages cost Number of cows Labour required (FTE) Owner operator 250 500 750 1 000 1.0 1.25 1.25 1.5 Other wages 2.0 3.75 5.25 6.5 Total 3.0 5.0 6.5 8.0 Cows per labour unit Wages cost 33 83 100 115 125 Owner operator Other wages $68 330 $91 100 $102 490 $113 880 Total Average cost per labour unit Labour cost per kg milk solids $89 000 $157 330 $52 450 $1.57 $166 880 $257 980 $51 600 $233 630 $336 120 $51 750 $289 250 $403 130 $50 400 $1.32 $1.15 $1.06 Source: Macquarie Franklin, April 2017#13222 The dairy industry in Tasmania Table 9: 250 cow farm Income Milk sales Stock trading Total income Expenses A guide for investors Total Per effective Per cow ha Per kg milk ($'000) ($/ha) ($/cow) ($/kgMS) 515 4 478 2 060 5.15 50 238 110 0.27 565 4910 2 259 5.65 Shed and cow costs 43 374 Feed costs 155 | 350 621 ཁཊྚ 172 0.43 1.55 Tractor and plant operating 25 215 99 0.25 Repairs to structures and improvements 23 196 General overheads 15 130 860 90 0.23 60 0.15 Wages (including owner/manager) 157 1,369 630 1.57 Capital replacement (depreciation) 20 170 78 0.20 Total expenses 438 3 804 | 749 4.38 Profit Earnings before interest and tax (EBIT) Return on capital (ROC) 3.8 127 per cent | 107 509 1.27 Source: Macquarie Franklin, April 2017 Table 10: 500 cow farm Milk price The assumed milk price of $5.20 per kg milk solids is conservative and is well below the longer-term trend of approximately $6.00 per kg milk solids. Over time, the real (adjusted for inflation) milk price in Tasmania has been relatively stable, but there has been considerable year-to-year variation. Tasmania's pasture-based farming systems, that have a reasonable stocking rate and typically feed up to one tonne of supplementary grain or pellets per cow, can generally respond well to annual milk price variations. Farms with a heavy dependence on grain feeding can have more trouble coping when milk prices are low and/ or grain prices are high. The indicative budgets below allow for around 0.9 tonnes of grain fed per cow. Farm profit Indicative profit budgets are outlined for the four farms described. Farm profit has been calculated as earnings before interest and tax (EBIT) and as a return on total capital invested. Depending on the amount of borrowed capital, there will be an interest cost to be deducted from the EBIT figure to arrive at a net profit estimate for a specific business. Also some operators may choose to pay themselves less than the commercial wages included in the EBIT calculation shown here. Income Milk sales Stock trading Total income Expenses Total Per effective Per cow ($'000) ha ($/ha) ($/cow) Per kg milk solids ($/kgMS) 1 014 4 409 2 028 5.20 99 432 199 0.51 1113 4 841 2 227 5.71 Shed and cow costs 85 371 171 0.44 Feed costs 303 1,317 606 1.55 Tractor and plant operating 36 158 73 0.19 Repairs to structures and improvements 40 174 80 0.21 General overheads 27 120 0.14 Wages (including owner/manager) 258 1 122 516 1.32 Capital replacement (depreciation) Total expenses 23 98 45 0.12 772 3 360 1 546 3.97 Profit Earnings before interest and tax (EBIT) Return on capital (ROC) Source: Macquarie Franklin, April 2017 341 1,481 681 1.75 5 per cent 23#1424 The dairy industry in Tasmania Table II: 750 cow farm Income Milk sales Stock trading Total income Expenses Total Per effective ha Per cow ($'000) ($/ha) ($/cow) Per kg milk solids ($/kgMS) 1 521 149 4 474 2 028 5.20 438 199 0.51 1 670 4912 2 227 5.71 Shed and cow costs 129 379 172 0.44 Feed costs 462 1,359 616 1.58 Tractor and plant operating 48 141 64 0.16 Repairs to structures and improvement 50 147 67 0.17 General overheads 45 132 60 0.15 Wages (including owner/manager) 336 989 448 1.15 Capital replacement (depreciation) 26 75 34 0.09 Total expenses Profit 1 096 3 222 | 461 3.74 Earnings before interest and tax (EBIT) Return on capital (ROC) 574 1,689 766 1.96 6.1 per cent Source: Macquarie Franklin, April 2017 &Delan DeLaval 5324 A guide for investors 25 Per kg Farm summary A comparison of the four farms is provided in the table below. The analysis shows the potential for return on capital increases with increasing farm size. This is due mainly to a relative reduction in the cost of labour, plus a slightly lower capital outlay per cow. Table 13: Farm summary The slight increase in capital investment per cow between the 250 cow and the 500 cow farms is associated with a shift in the type of dairy, from a herringbone to a rotary shed. The cost per hectare falls after 500 cows, with the nominated 50 bale rotary dairy able to milk up to 1000 cows. Table 12: 1000 cow farm Total Per effective Per cow ha ($'000) ($/ha) ($/cow) milk solids ($/kgMS) Income Milk sales Stock trading Total income Expenses 1976 4 391 1976 5.20 193 429 193 0.51 2 168 4 820 2 169 5.71 Cows milked Number 250 20 unit HB 500 750 1 000 Replacements carried on-farm 50 unit 50 unit rotary rotary 50 unit rotary Shed and cow costs 171 381 171 0.45 Feed costs 614 | 364 614 1.62 Tractor and plant operating 48 107 48 0.13 Capital investment Total Per cow $million $ $3.36m $13 464 $6.79m $9.41m $12.37m $13 583 $12 547 $12 370 Pasture consumed tDM/ha 9.6 9.6 9.6 9.6 Repairs to structures and improvements 65 144 65 0.17 General overheads 122 55 0.14 Irrigation per cent 50% 50% 50% 50% Grain fed t/cow 0.9 0.9 0.9 0.9 Wages (including owner/manager) 403 896 403 1.06 Capital replacement (depreciation) 38 85 38 0.10 | 394 3 099 1 395 3.67 Labour Total units Total expenses Profit Earnings before interest and tax (EBIT) Return on capital (ROC) Source: Macquarie Franklin, April 2017 774 | 720 774 2.04 6.3 per cent FTE 3.0 5.0 6.5 8.0 Cows per unit Cows/FTE 83 100 115 125 Milk price (below long term average) Return on capital' $/Kg MS $5.15 $5.20 $5.20 $5.20 per cent 3.8% 5.0% 6.14% 6.3% 1. Return on capital (EBIT) before capital appreciation. Source: Macquarie Franklin, April 2017#1526 The dairy industry in Tasmania A guide for investors 27 22 Dairy conversion opportunities There is potential in Tasmania to create new dairy farms by converting current grazing or cropping farms into dairy units. Ideally a potential dairy conversion property will have the potential to milk 500 or more cows. It will be in either the traditional higher-rainfall areas, or in lower-rainfall areas with access to a plentiful supply of irrigation water at a reasonable cost. The advantage of dairy conversions over existing farms is that there is more scope to have a fully functional farm with new infrastructure, situated in the right place. In addition to this, the scope to grow over time can be built in upfront, rather than hoping that adjoining properties come onto the market over time. There is a substantial amount of land available in Tasmania suitable for conversion to dairying. Tasmania is also one of the few states which has a government water development strategy in place and is encouraging farmers to develop water resources for agricultural purposes. New irrigation schemes currently being developed by Tasmanian Irrigation have the potential to open up new land for dairying. Subject to water management plans and maintenance of environmental flow requirements, it is also possible to obtain new water rights for winter-take into storage. Alternatively, it is possible to buy or lease existing water rights from other farmers or buy water from them directly. Conversion opportunities currently lie in the following areas of the state. King Island There are large tracts of land suitable for conversion to dairying on King Island. There are variations in soil type and rainfall across the island that need to be taken into account. Drainage, soil fertility and a few pockets of salinity are potential issues. There is only one milk company on the island, which is King Island Dairies, owned by Lion (previously National Foods) and its requirement for additional milk will be a key factor in any proposed investment. Far north west There is reasonable for dairy scope conversions in the far north west (Circular Head municipality), including some large beef properties. The climate is ideal for dairying with good rainfall distribution and limited frosts. The far north west is considered the best dairying region in Tasmania and as a result it is already a well-developed dairy area. Some conversions may need to include several adjoining properties. Some of the land in the district, particularly on swamp ground, would require drainage as part of the conversion process. Central north west This area has limited scope for dairy conversions because of the small size of many of the properties. There is competition for the better land from intensive horticulture operations. Base land prices are generally higher than in other prospective areas. Central north There is a significant area of land suitable for converting to dairy in the central north. Large properties currently running extensive cropping and livestock are well-suited to dairying. Rainfall in this region varies considerably and will need to be taken into account when selecting a potential dairy farm. Many of the farms have large historical water rights. Irrigation requirements are also relatively high, due to lower summer rainfall (in some areas) and high evapotranspiration rates. The Meander Dam was completed in 2008 and has the capacity to provide an additional 23 900 megalitres in the Deloraine area, to properties along the Meander River and via four pipelines installed in 2010 (Caveside, Rubicon, Quamby and Hagley). The Northern Midlands is also reasonably prospective, with larger properties, relatively flat topography and with the current and ongoing irrigation development in the area. Several dairy conversions have already been undertaken in recent years. The availability of irrigation water from new schemes being developed by Tasmanian Irrigation will open up additional potential in the Midlands and Northern Midlands over the next few years. North east The north east (Dorset municipality) is already one of the three main dairying areas in the state and there are opportunities to develop further, with large areas suited to dairying with the aid of irrigation. Tasmanian Irrigation has recently completed the Headquarters Road Dam in the Scottsdale area plus an expansion of the Winnaleah Irrigation Scheme. There are also further schemes currently being assessed. As well as the traditional inland dairy areas on the better-class clay loam soils, there is also potential for large-scale dairy development on some of the sandy and sandy loam soils closer to the coast. While the soils are not as naturally productive, winter temperatures are higher with very few frosts. In recent times, many of these properties have installed irrigation (usually pivots) to grow crops such as potatoes and poppies. Some of the soils are not robust enough to withstand continuous cropping, but are well-suited to grazing and hence dairy farming. In some instances, there may be the need to combine farms to get to commercially viable sizes, however there are also many larger farms in the area. Derwent Valley There are large properties along the Derwent River with significant water rights that would be suitable for conversion to dairying. The area has some of the warmest summer temperatures in Tasmania and with the aid of irrigation and improved soil fertility is capable of excellent pasture production. Local sources suggest that some of the better land lies away from the river and therefore water may need to be pumped or transferred over some distance. There are also good alluvial soils along the river itself. Dairy conversion investment has occurred in recent years and has the potential to develop further. South of Hobart There is some smaller scale dairy investment occurring. For example, the Bruny Island Cheese Co. farm expansion in Glen Huon. There is very limited potential to convert land to dairy farming in the area south of Hobart. Potential returns from dairy conversions The following tables provide some indicative figures as a guide to investment. There are many variables to consider in undertaking a dairy conversion, so potential investors wishing to go further should consult widely. A list of useful industry contacts has been provided on the back cover. Assumptions The financial models used to assess the financial viability of dairy conversions use a number of assumptions that underlie the results shown. The key factor in achieving a good result is the ability of the manager. Important profit drivers include: ≫ initial capital cost » pasture utilisation per hectare (and stocking rate) >> labour efficiency and >> milk price. The financial models assume that the management deployed within the system is average or above. Hence so too is financial performance. Significant capital expenditure is included in the models to provide a solid platform for good performance. The conversion farm is assumed to be in a lower-rainfall non-traditional area of the state. Conversion is assumed to require purchase of a water right, at a capital cost of $1 300/megalitre, sufficient to irrigate around 50 per cent of the total effective area. Alternatively, if the farm already has water and irrigation infrastructure, the base price will be higher and the conversion cost will be lower. Replacements are assumed to be run off-farm and limited grain input (around 0.7 tonne per cow) is used. The $5.20 per kg milk solids milk price is the assumed closing milk price for 2016-17. This is below the longer-term trend of approximately $6.00 per kg milk solids. The main assumptions are outlined in the following table and explained overleaf.#1628 The dairy industry in Tasmania Table 14: Farm conversion assumptions Cows milked Farm area Number 700 Replacements off-farm 1 000 Total farm area ha 330 475 Total effective area ha 297 428 Irrigation area (50 per cent) ha 149 214 Milk production Per cow kgMS 375 375 Total kgMS 262 500 375 000 Pasture consumed' Irrigated area tDM/ha 12.0 12.0 Dryland area tDM/ha 6.0 6.0 Average tDM/ha 9.0 9.0 t/cow 0.7 0.7 Grain fed per cow Labour required Total units FTE 6.4 Cows per labour unit Cows/FTE 110 130 Cost per kg milk solids $/kgMS $1.25 $1.03 738 7.7 Bare land value Dryland $ per ha $7 000 $7.000 Irrigated² $ per ha Capital investment Land and improvements - initial $ million $2.45m $3.65m Water purchase $ million $1.14m $1.65m Irrigation development $ million $0.67m $0.96m Rotary dairy³ $ million $1.38m $1.45m Other farm improvements* $ million $0.78m $0.98m Stock $ million $1.25m $1.79m Plant and machinery $ million $0.27m $0.38m Working capital $ million $0.29m $0.41m Total capital $ million $8.24m $11.27m Per total ha $ per ha $24.977 $23 736 Per effective ha $ per ha $27 752 $26 373 Per cow $ per cow $11 775 $11 275 Per kg milk solids $ per kgMS $31.40 $29.67 Milk price Average for season $/kgMS $5.20 $5.20 1. Overall pasture utilisation here is assumed to be slightly less than for a current farm in a more traditional area. Higher figures are achievable. 2. None purchased. Water purchase and irrigation development are assumed to be part of the conversion process. 3. Includes all equipment, milk silo, grain silos and feeding system, power installation, effluent system, and tanker access road. 4. Includes extra house, calf shed, fencing, laneways, water supply, capital fertiliser and pasture renovation. Source: Macquarie Franklin, April 2017 A guide for investors 29 On a per cow basis, the total capital investment indicated is similar to that required to buy an equivalent, currently operating dairy farm, on a walk-in-walk- out basis. For example, the Tasmanian Dairy Business of the Year results for 2015-16 show an average farm asset of $11 596 per cow over 31 farms. For the top 10 per cent of all farms the figure is $9 616. Also, see section on "buying a farm" with above average farms with total assets of $12 400 to $13 500 per cow with all replacements reared on-farm. This number will be lower with replacements agisted off-farm and more cows milked. In addition a fully set up new dairy conversion farm should be 'state of the art' and therefore perform better than an average farm, especially from a labour cost point of view.#1730 The dairy industry in Tasmania Dairy conversions return on capital The financial performance of the model conversion farms is summarised below. For a 700 cow conversion, the model suggests an 4.3 per cent return on capital before interest and tax (EBIT) before any capital gain. For the 1000 cow conversion, the model shows a 5.1 per cent return. The indicative budgets suggest some economies of scale associated with the larger farm. This is associated with better utilisation of expensive farm infrastructure and an assumed higher labour efficiency with the larger farm: 130 cows per FTE for the 1 000 cow farm versus 110 cows per FTE for the 700 cow farm. However, managerial requirements are higher for a 1 000 cow farm. The costs and returns outlined below are intended as indicative examples only. All potential dairy conversions have individual circumstances and should be fully assessed on an individual basis. Table 15: Dairy conversion investment - indicative returns Cows milked 700 1 000 Capital invested Total $8.24m $11.27m Per effective ha $27 752 $26 369 Per cow $11 775 $11 273 Per kg milk solids $31.40 $29.66 Income $'000 $'000 Milk sales 1 365 1976 146 Stock trading Total income Expenses Shed and cow costs 1 511 $'000 122 231 2 207 $'000 175 Pasture and feed costs 576 874 Tractor and plant operating 30 49 Wages 328 390 Repairs to structures and improvements General overheads and insurance یں میں یہ 35 60 35 50 38 Capital replacement (depreciation) per effective ha Total expenses Profit (EBIT) Return on capital (ROC) 1. Earnings before interest and tax. 27 | 153 1 636 358 571 4.3 per cent 5.1 per cent Note: New dairy farm conversion might take two or three years to reach its potential. The financial returns outlined assume that three years have passed since the conversion took place. Income may be less and costs higher in the earlier years. Source: Macquarie Franklin, April 2017 A guide for investors 31#1832 The dairy industry in Tasmania A guide for investors 33 Investment regulations and business entry Assistance for investors Investment approvals The Australian Government's foreign investment guidelines recognise the substantial contribution that foreign investment has made and continues to make to the development of Australia. The administration of foreign investment policy is based on guidelines rather than inflexible rules. It is both practical and non-discriminatory. Proposals by foreign companies to establish new businesses may require prior approval and government notification, under the Australian Government's foreign investment policy. Purchase of all land, including rural land, is regulated by the Foreign Investment Review Board (FIRB). At the time of writing, rural land purchases of less than $55 million do not require FIRB notification. More information, including the definition of 'rural land' and monetary thresholds, is available from the FIRB website at: www.firb.gov.au Entry to Australia The Australian Government provides several visa options for overseas business people and investors to enter Tasmania. These include short-stay visas allowing exploratory visits and business meetings, through to visas providing permanent residency. www.migration.tas.gov.au Australian Government assistance The Australian Government offers a range of assistance for businesses wishing to establish in Tasmania. AusIndustry AusIndustry delivers programs on behalf of the Australian Government to help existing and new Australian businesses innovate, grow and succeed. www.business.gov.au Austrade The Australian Trade Commission (Austrade) is the Australian Government's trade and investment development agency. Austrade assists Australian companies to succeed in international business, attracts productive foreign direct investment into Australia and promotes Australia's education sector internationally. www.austrade.gov.au Tasmanian Government assistance The Office of the Coordinator-General is the Tasmanian Government's principal entity to attract and support investment, which provides free confidential services and professional advice to investors, including: » dedicated project teams and case management » connections with local industry associations and government departments > information on business opportunities, investment regulations and government assistance insights on business costs, skills, availability, taxation and research opportunities » expert advice on Tasmania's industry capabilities and strengths >> site visits to identify suitable locations in Tasmania for business > links with potential partners >> connections with infrastructure and service providers ≫ information on industry strategies. www.cg.tas.gov.au#19Tasmanian Government Contacts DairyTas Phone: +61 3 6432 2233 (International) Email: [email protected] Web: www.dairyaustralia.com.au/dairytas Department of Primary Industries, Parks, Water and Environment Phone: 1300 368 550 (Australia) +61 3 6233 8011 (International) Email: [email protected] Web: www.dpipwe.tas.gov.au Department of State Growth GPO Box 536 Hobart Tasmania Australia 7001 Phone: +61 3 6165 5043 Email: [email protected] Web: www.stategrowth.tas.gov.au Office of the Coordinator-General PO Box 1186 CH Smith Centre 20 Charles Street Launceston Tasmania Australia 7250 Phone: +61 3 6777 2786 Email: [email protected] Web: www.cg.tas.gov.au Tasmanian Farmers and Graziers Association Phone: 1800 154 III (Australia) +61 3 6332 1800 (International) Email: [email protected] Web: www.tfga.com.au Tasmanian Institute of Agriculture (TIA) Dairy Centre Phone: +61 3 6430 4915 (International) Email: [email protected] Web: www.utas.edu.au/tia/dairy-grains-and-grazing Tasmanian Dairy Industry Authority Po Box 303 Devonport Tasmania Australia 7310 Phone: +61 3 6478 4100 Email: [email protected] DairyTas Invest Tasmania