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18 December 2002
Dairy production and herd size are expected to continue increasing according to MAF forecasts set out in the latest Situation Outlook for New Zealand Agriculture and Forestry (SONZAF) December report.
The report says manufacturing milksolids production was up around six percent for the year ending May 2002, mainly due to rising cow numbers - a trend that's likely to continue. The report does say, however, that annual growth is likely to tail off, mainly as a result of lower expected payouts.
The industry average payout in the year ended May 2002 was $5.32/kg of milksolids (MS), primarily the result of a more favourable US dollar/NZ dollar exchange rate. The author of the dairy outlook report, Senior Policy Analyst Tony Wharton, says the medium term outlook is for lower, but increasing, payouts as international product prices recover. "Payouts, however, will be constrained by the assumption of an appreciating New Zealand dollar," he says.
The SONZAF report looks at three time periods - the 2001/02 season, the outlook through to 2005/06 and a scenario for a longer-term outlook.
Highlights for the 2001/02 season include:
Looking at the period from 2002/03 through to 2005/06, the report says that climatic factors (a cold and wet spring this current year) will likely see per-cow milksolids production for this first season down by approximately one percent.
But Mr Wharton says because the number of cows is estimated to have increased by around 95,000 head from last season, total milksolids production for 2002/03 is predicted to be two percent higher than last season.
Over the medium term, total opening cow numbers are expected to continue to increase to around 3.99 million by June 2005 - a six percent increase from June 2001.
Mr Wharton says, however, that the rate of annual increase in cow numbers is expected to decrease over this period - primarily due to lower expected farmgate payouts than those received in the past two seasons.
"While it had previously been thought that the higher entry costs to dairying under Fonterra would also be a major factor lowering herd expansion and the growth of the milk supply, MAF's 2002 Dairy Farm Monitoring report showed that this was not necessarily the case," Mr Wharton explains.
Other trends identified for the period through to 2005/06 include:
One possible scenario for a longer term outlook is that the nature of dairy markets, especially in developed nations, will continue to change away from supply-led trade in traditional dairy commodities to demand-driven trade in higher value-added products and milk components.
A successful conclusion to the Doha round of trade negotiations with the substantial reduction of export subsidy limits would bring some relief to the international trading environment for dairy products, currently characterised by very high tariffs in many markets.
Tony Wharton predicts new products and new uses for milk will continue to be developed, as will enhancements to existing dairy products to remove or mitigate some of the attributes some consumers find undesirable e.g. fat and lactose.
"As a result, dairy products will be in a position to recapture part of the market that has been taken over by substitute products such as soy milk," Mr Wharton says.
The report also predicts a long-term scenario for New Zealand dairying where the farming of herds of cows genetically selected for their ability to produce particular milk components may well become commonplace in order to meet the demands of particular overseas niche markets at the lowest cost.
It also predicts that the robotic milking of cows could become widespread as the industry works to contain costs and overcome the problems of a shortage of skilled labour entering the business.