Growth in milk production and exports predicted by MAF forecaster

21 December 2004

Lower dairy payouts over the next few seasons, and rising production of both milk and all major dairy products are just part of the outlook for the New Zealand dairy industry, according to the Ministry of Agriculture and Forestry (MAF).

“As announced by Fonterra earlier this month, the milk solid payout to dairy farmers this season will increase,” says Senior Policy Analyst Tony Wharton.

“However, we expect that the payout will fall next season, due to the assumption that Fonterra will face both a higher exchange rate under its foreign exchange hedging policy, and falling world market prices. Over the remainder of the outlook period (until 2007/08), however, payouts are projected to rise (to stay at or below the current season’s payout) as product prices rise and Fonterra is assumed to face lower hedged exchange rates.”

The projections are made in MAF’s 2004 Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) report on the New Zealand dairy industry.

SONZAF is an annual roundup of New Zealand’s main agriculture and forestry industries, covering the major issues and trends, the current situation and the medium-term outlook. Each article is written by an industry specialist, and incorporates both modelled price, production and export projections with industry intelligence. One particular feature of SONZAF is that it includes projections based on two alternative exchange rate tracks as well as the main projections. This enables readers to better understand the prices that could result should exchange rates differ from those used in the main projections. 

The 2003/04 dairy season saw record production levels of both milk solids and dairy products, as well as record export volumes. Nearly one-third of New Zealand’s dairy product export revenue came from the sale of whole milk powder, with butter and cheese the next biggest earners.

Between 90 and 95 percent of the dairy products made in New Zealand are exported, with product going to over 143 countries in the year to May 2004. The balance was sold on New Zealand’s small domestic market. Over the same period, dairy product exports accounted for 20 percent of New Zealand’s total merchandise export revenue.

Over the outlook period to 2007/08, milk volumes are forecast to continue to rise. The quantity of dairy products made and exported is also projected to grow. Mr Wharton predicts that the dairy industry will place greater emphasis on the production of milk powders, as these are the products most in demand in emerging markets, where they are used both for reconstituting into liquid milk and as ingredients in foodstuffs.

“Several factors are expected to have a major influence on the international dairy product market over the outlook period,” says Mr Wharton. “These include:

  • relatively low Australian production and exports, as the Australian dairy industry gradually recovers from the effects of drought; 
  • high oil prices driving increased consumption of dairy products in oil-producing countries;
  • modest growth in demand for dairy products in OECD countries; and
  • strong growth in demand for dairy products in non-OECD countries.”

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