November 22, 2006

New Zealand dairy production to slow despite growth from new markets

Growing interest for New Zealand's dairy products among new consumers in the Middle East suggests a strong export market ahead for the country.

The majority of New Zealand's milk is processed into dairy products for export and the country only consumes 5 per cent of its produce. It particularly looks forward to new markets for growth of its dairy commodity sales.

Asia, a major market for New Zealand dairy industry accounts for 40 per cent of its export volume, with 7 per cent going to China and 6 per cent to the Philippines. But while China is said to be the world's fastest growing dairy market, domestic production has been increasing at a much more rapid rate than the Middle East.

With significant investment in new herds and breeding to increase domestic raw milk supply, many in the industry expect Chinese dairy production to catch up with demand in the long-term.

In the Middle East however, only a couple of countries such as Saudi Arabia and Algeria have been encouraging domestic production, making it unlikely to keep pace with a growth in demand, said a report.

Demand in the Middle East has been going strong on rising oil prices and the resulting increase in wealth.

Total sales to the Middle East exceeded NZ$1 billion (US$0.66 billion) for the first time in the year ended June 2006, according to the report. According to Rabobank combined demand from this region and North Africa should grow at around 5 per cent per annum through 2010.

However, New Zealand would not be able to meet much of this demand, with European and other processors already making increasing sales in this region.

Moreover, the country's production could slow in the coming years, restricted by high land prices and higher costs. Tapping the opportunities in developing dairy markets would therefore become more challenging, after a 10-year 'honeymoon' period for the industry marked by record production levels and stellar international commodity prices.

As a result, New Zealand's dairy industry would have to look for greater value from its exports rather than new market share.