Dairy farmers aren’t enjoying the lower prices that have followed a drop in demand for milk, but they could be good in the long run:
Low dairy prices will benefit the New Zealand dairy industry in the long term, Lincoln University Agribusiness and Food Marketing Programme Director Nic Lees says.
“The low prices are the best thing that can happen as it will limit the European expansion.”
He says a cost war is going on between New Zealand and Europe at the moment.
“Quotas have come off production in Europe so they are expanding production. This is similar to what is happening in oil with expanding production due to shale gas,” Mr Lees says.
“Ireland, for example, is planning to increase milk production by 50 per cent.”
A Dutch dairy farmer who visited us last year had begun increasing his cow numbers in preparation for the end of quotas.
He says New Zealand is the Saudi Arabia of milk — “We can be the lowest cost producer, but need to focus on grass based production to weather the storm”.
“Grass will always be the lowest cost source of feed and New Zealand has the most efficient grass- based dairy system in the world.
“Ireland can grow grass too but currently they utilise less than half what they grow. The large housed dairy operations in Europe are also only profitable at high milk prices,’’ Mr Lees says.
“We need to focus on what we are good at, which is grass.”
Higher prices encouraged farmers to use more expensive feeding systems but our climate and soils give us a natural advantage in growing grass.
The halcyon days may be gone for a while though.
“We are unlikely to see high prices again soon.
“It is going to be a slow recovery of price and dairy farmers need to be able to be profitable at $5/kgMS or they won’t survive.”
He says the average milk price over the last 10 years was around $5.50/kg MS.
“It is likely that this will be similar over the next decade as well. What we are seeing though is greater volatility. This is going to continue so farmers need to have systems that are still profitable when the price is low. The most resilient system is the low input grass based system.”
As an economy we also need to see the opportunities in other areas, he adds.
“For example there have been record high returns for beef in the first six months of this season, with the average per tonne value up 28 per cent. Beef is a great story with China needing to increase its beef imports by up to 20 per cent a year for the next five years to meet its surging demand for protein.”
Lamb also has good prospects, Mr Lees says, and there are other opportunities, such as can be seen with the growing sheep dairy industry.
Lower dairy prices will take the heat out of land prices.
They’ll also make conventional sheep and beef farming more attractive and there is potential for more sheep milk production.