Russia’s ban on imported agricultural products, including dairy products, is due to end in December 2017, boosting global dairy prices, says an industry report.
Dairy farmers and processors in the European Union are expected to meet the bulk of Russia’s fresh demand, which will reduce competition in New Zealand’s key markets such as China, says the report, NZs Dairy Cattle Farming, by the global business research company IBISWorld.
Additionally, stockpiles of dairy products built up over the past five years will likely diminish over the next two years, placing further upward pressure on global dairy prices, the report says.
Rising global dairy product prices and improved export earnings for processors will likely encourage local processors to increase farm gate milk prices, boding well for the industry.
However the report says the dairy cattle farming industry will remain volatile over the next five years, due to its links with downstream export markets. Conditions are expected to largely improve as global pricing issues are resolved; output at the farm level is projected to increase over the next five years, assisting industry growth.
Industry revenue is forecast to grow at a compound annual rate of 1.3% over the five years to 2022-23, to total $14 billion, with favourable weather conditions.
Industry participation is forecast to rise at a slower rate over the five years to 2022-23 compared with the previous five years, the report says. Another global dairy boom similar to 2013-14 is not likely, which will limit the number of new entrants joining the industry.
Industry employment is projected to rise at a similar rate to the previous five-year period.
Improving farm gate milk prices are likely to encourage farmers to expand their dairy cattle herds over the next five years, due to the prospects of higher returns per cow.
This projected expansion will increase national milk production, which should assist industry revenue growth. Additionally, the volume and quality of raw milk produced by each cow is forecast to rise over the period. Higher farm gate milk prices should encourage farmers to purchase greater quantities of stock feed, which will help improve milk yields and milk solid content for raw milk due to improved cattle nutrition.
However, these forecasts are based on average seasonal conditions. Any extreme weather, including drought, flooding or earthquakes, would likely constrain milk production over the next five years.
Industry profitability is projected to trend upwards over the next five years. The anticipated recovery of global dairy prices, particularly over the next two years, should help boost the bottom line of dairy cattle farmers who have struggled over the past five years.
The IBIS World report says the vast majority of dairy cattle farmers supply Fonterra, which collects about 87% of national milk production.
However, some dairy cattle farmers have moved away from Fonterra over the past five years, shifting towards other processors to gain better farm gate prices and contract terms. This trend will likely continue over the next five years, as farmers seek to improve their bottom line and ability to remain profitable.
This move may help increase average profitability across the industry.
However, this shift by some dairy cattle farmers is unlikely to significantly affect industry-wide profit as these processors compete with Fonterra in most markets.
The dairy Cattle Industry report is one of 200 dedicated industry reports on the NZ economy by IBISWorld.
This is its first foray into the NZ market. It has been operating in Australia since 1971.
Source: Dairy News