Competition in global dairy markets will intensify as people in developing countries clamour for protein, says a Rabobank expert.
Rabobank senior dairy analyst for New Zealand Hayley Moynihan spoke to about 200 farmers at a function in Hawera last week.
She said most growth in global dairy consumption would be on New Zealand's doorstep in Asia and the Middle East, regions which would both struggle to be self-sufficient in protein.
Feeding the growing middle- class in those regions would be a global challenge and the lion's share of the new demand would have to be met by the United States and the cost-competitive countries of Europe.
Traditional suppliers like New Zealand would make only a modest contribution to the extra demand. While New Zealand would remain a significant global dairy exporter, its market share would decline by 2020.
Milk production here would continue to increase, but the rate would not be as rapid as in other countries, like those in the European Union, where quotas were being abolished in 2015.
"The world market needs more production and competition will be more intense.
"New Zealand needs to retain its focus on quality, to be cost- competitive, and to maintain its existing relationships."
Dairy exports from the US would increase, especially to Asia, by 2020.
"US exporters are much more active than previously and are competing more vigorously than they ever did in the past."
The milk pool was growing in the stagnant economy in the US and the weaker US dollar was making its exports more competitive, even though farmers were paying more for grain on the back of drought there.
The country had also moved to larger-scale and more efficient dairy production facilities.
Moynihan said the presence of US exporters in Asian markets was not a flash in the pan.
"They're there to stay and they'll provide stronger competition for New Zealand because they're building relationships there and making niche products.
"Farmers in New Zealand should be aware that the US domestic and international markets are now inter-related and what happens in one will affect the other."
She said New Zealand farmers would need to control production costs to remain competitive.
New Zealand's high exchange rate was an ongoing issue and farmers should adopt conservative budgets and ask themselves, "What will I do if the payout goes lower or if it goes higher?"
She said they should have a contingency for either scenario and be prepared for change.
"It's about building resilience into their business so they have a fallback position. A strong business can withstand downturns."
Their focus would turn to getting more production from a similar number of cows, although the total might grow slightly, she said.
- © Fairfax NZ News
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