December 6, 2007

Concerns surface as New Zealand faces dairy export boom

Although New Zealand has seen a year of strong dairy exports, the end to low cost dairy production could spell higher costs for the low cost producer and higher milk prices internationally, a USDA report said.

As New Zealand is a key dairy producer, major changes to the country's milk production could reverberate in the international supply chain.

Furthermore, in the 2006 to 2007 marketing year, the country's exports reached record levels for both volume and price,

New Zealand's dairy farmers also got 43.5 percent more for their milk through Fonterra, the dominant dairy co-operative in the country.

Milk production is already being stepped up in the country but as processors face rising prices for their milk supplies, the price of milk in the international arena would likely go up in the short term, thanks to growing demand. 

New Zealand milk output will continue to increase marginally next year by about 1.5 per cent. 

Although production growth is expected to stabilize at 1.5 per cent to three per cent in the next few years, as the number of farmers converting to dairy production slows down, cost effectiveness is likely to decrease, the USDA said.

Furthermore, as increased payments to farmers often leads to increase expenditure to increase milk output, this would mean greater supplies which act to push down prices.

Rising land prices would also pressure the tenet of low cost production for New Zealand's dairy farmers.

However, the country's dairy farms may be able to benefit from Fonterra's research and development capabilities to increase cost effectiveness, the USDA noted.