I work in the industry and have seen first hand the problem of reducing milk pool. My understanding is that most of the farmers getting out of dairy are transitioning to beef production or selling up altogether and retiring. The ones that transition to beef wont come back to dairy as the reality is they probably want to have an easier lifestyle in their later years before they retire/sell. A lot of them are seeing this as a good time to exit the industry with the high farm land prices and high milk prices, and reasonable cow prices to sell into markets. You can't blame them for wanting something different after the last 10 years of turmoil in the industry (MG and Fonterra Claw-back saga etc - a lot never financially recovered and a lot lost their trust of the co-ops).
Also, there is not much help for young farmers who want to get into farming and have a real crack at dairying - for example its nearly impossible securing finance as a 25-30 year old on a $5-7m+ property, and then the cost of stocking with a milking herd and then funding working capital until cashflow starts to come in. Most banks want at least LVR of 60-80% which means the young farmer has to find 20-40% up front. Not many have that sort of cash saved up, or are in a position to have a guarantor... A lot of the kids of the current generation of dairy farmers are not interested in the dairy lifestyle of their parents with early mornings and no holidays unless you pay someone to do the work while you are away (and hopefully they care enough to do it properly and not cost you for any quality issues that happen while you are away) - and would rather do something not as intensive or just not farming at all - a lot of them see the things that have happened in the dairy industry and would rather not be involved.
One of the main problems with the way the dairy industry works is that the prices paid to farmers varies depending on a number of factors - some of which are based on volume of milk and some based on the time of year when the production of milk peaks. The smaller and more variable farmers generally get paid less than the larger and less variable farmers (because consistent production of milk means that the factory can operate more efficiently, and larger farmers provide economy of scale for transportation of milk to factory as the truck only needs to stop at 1 or 2 large farms to be full rather than 10-12 small farms). The main problem with the milk payment models in the industry is that as the milk supply continues to rationalize and reduce by way of farmers retiring or leaving dairy for other reasons, the less smaller and variable farmers in the milk pool there are to subsidize the larger and consistent farmers, and this will provide a disincentive overall to larger and consistent farmers to produce in the long run as their return on milk will eventually diminish and become closer to the average prices/kg as stated by the factories.
Its a very complex problem with many factors, and for sure there is no easy way to solve it. My best idea would be to get the government to subsidize young farmers with reduced interest loans, grants, and industry partnerships etc. The more young farmers there are owning and working hard on their own land, the more will see dairy as a productive and lucrative business model and will take it up. Any solution will not solve the problem in the short term, it will be near a generation before the milk pool can be where it was 10 years ago.
Hope this gives you at least something interesting to read.
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