Dairy sector overview

It seems an understatement to describe the prospects for the dairy sector in New Zealand as positive – the outlook provided in MAF’s June 2011 SONZAF report. Notwithstanding challenging market conditions in the US and many European markets, which may cause some demand and price uncertainty/volatility, the prognosis for the New Zealand dairy industry looks extremely good. International dairy prices have been off the highs of 2008 (with the exception of butter) but have been increasing since 2009. Rising incomes in developing countries, together with demand from oil exporting economies experiencing strong economic growth, is supporting dairy prices. Global population projections by the United Nations through to 2100 indicate growth of over 40% – highlighting a likely scenario of increasing demand and commodity prices.

Figures for the year ending June 2011 underline the dairy sector’s ‘star performer’ status within the New Zealand economy in terms of total contribution and growth in export value generated. Total export value was $13.193 billion with year-on-year growth of 25%. The highest performing sub-segments were; (1) whole milk powder which increased 43% and (2) butter, anhydrous milk fat and cream products, which increased 37%. To the end of June 2011, the dairy sector contributed about 30% of total New Zealand merchandise exports and 52% of total agricultural products (i.e. excluding forestry and seafood). New Zealand is now the world’s largest exporter of whole milk powder and China, New Zealand’s biggest market, is now the largest importer. India accounts for 40% of world butter consumption – but is largely self-sufficient. Given, however, the UN population forecast for India of circa 1.7 billion by 2050, reliance on its own domestic product doesn’t seem sustainable.

On the production front, MAF estimates that the number of cows and heifers in calf or in milk is anticipated to increase about 6.5% (to circa 4.98 million) between 2011 and 2015. Over the same period, milk solids produced are forecast to increase by just over 11% to circa 1,638 million kgs.

Barring a sustained global economic meltdown or disaster, the continued strong economic and population growth in Asia, the China-NZ FTA, recovering US and EU economies, together with strong forecast population growth in Africa, are expected to support demand and prices well into the foreseeable future. The key theme emerging through to 2100 is a likely shift in the demand dynamics from our traditional markets to a new economic order dominated by Asian markets.

Data source: Ministry of Agriculture & Forestry, Statistics NZ, United Nations