October 13, 2015

 

Hit by low prices, NZ dairy farmers seeking new direction

 

 

The New Zealand dairy cattle industry is in a flux, seeking direction as it battles, according to the US Department of Agriculture, "very low milk prices".

 

According to the USDA in its "New Zealand Cattle and Beef Report 2015" issued late August, the industry's medium-term direction won't be clear until dairy farmers make longer-term decisions on herd numbers, adding this would only become evident over the next 12 to 18 months, or by late next year or early 2017.

 

For now, dairy farmers are poised to "endure a second season of very low milk prices and possibly the prospect of only a marginally profitable milk price in the 2016/17 milk production year", the report said.

 

It added that this has led dairy farmers to question their business models and contemplate on-farm major changes which "would result in cow numbers being reduced significantly to lower the expense on supplementary feed and off-farm grazing of replacement stock and nonlactating cows".

 

The USDA sees the national dairy cow herd (both in-calf and dry) decreasing from a peak of 5.66 million head in marketing year (MY) 2015 to 5.42 million head by the end of MY2016.

 

'Painfully low'

 

Rabobank, in its recently released Quarter 3 dairy report, also said milk prices are expected to become even "more uncomfortable in many regions in the coming months" even as it described  milk prices in New Zealand as "painfully low".

 

A news report by China Daily says prices have gone down by as much as 50% due to world milk glut and a decline in Chinese demand for imported dairy products, forcing many New Zealand farmers to borrow in order to stay afloat and causing increased farmers' suicides in rural areas. It cited statistics released in September that showed 27 New Zealand farmers and farm workers committed suicide in the past year, the highest number in five years.

 

New Zealand's dairy export value in the year that ended June decreased to NZ$12 billion (US$8.02 billion) from nearly NZ$16 billion ($10.7 billion) in the previous year, the China Daily said.

 

New Zealand's dairy trade to China, in particular, went down from NZ$6 billion ($4.1 billion) last year to just NZ$2.3 billion ($1.5 billion) this year, it added.

 

China competing

 

China's decreasing dairy imports may be partly attributed to some Chinese dairy companies, such as Mengniu and Yili, becoming competitors to foreign exporters as the government supports the development of China's own dairy industry, which is recovering from past food scandals.

 

Data from China's agriculture ministry showed that Chinese milk production has recovered since 2013 and that there has been a substantial drop in total dairy import during the first six months of 2015.

 

China is also boosting the quality of its milk production. For example, 99% of the 79,000 cattle head exported by New Zealand in MY2014 went to China. These animals were dairy heifers destined to bolster the Chinese dairy herd.

 

As China, in the words of Theo Spierings, the chief executive of New Zealand's Fonterra, "is very serious about developing its own supply", New Zealand can perhaps tread the paths to other markets.

 

As the USDA noted, "New Zealand has been able to some extent offset the volume losses of the Chinese market by increased sales to destinations such as Algeria, Malaysia and the United Arab Emirates". --Rick Alberto