5 August 2024

2 minute read

By: Global Ag Media

Oceania

New Zealand's fluid milk production is forecast to decline by 0.7% to 21.1 million tons in 2024, according to the USDA's most recent World Market and Trade report on dairy. This decline is primarily attributed to the shrinking national herd and the short-term effects of the El Niño weather pattern, which brought both increased rainfall and challenging dry conditions at different times of the year. Additionally, the sector faces softening revenue and high costs of debt servicing, which have put pressure on many dairy farmers.

The macroeconomic environment in New Zealand remains challenging for many dairy producers. High interest rates set by the Reserve Bank of New Zealand (RBNZ) have increased the cost of debt servicing, comprising nearly 19% of the breakeven milk price per kilogram of milk solids (KgMS). This financial strain is compounded by rising input costs, particularly for feed and fertiliser, which are critical for maintaining high milk yields. Despite challenges for farmers, processors continue to invest in upgrading processing capabilities, shifting from milk powder production to more value-added products such as butter, cheese, and cream.

Trade remains a vital driver of New Zealand's dairy industry, with 95% of milk production exported in some form. The country's trade agreements, particularly with China, ensure steady demand for its dairy products. In January, Chinese the final duties on imports of New Zealand dairy products covered in the New Zealand-China Free Trade Agreement were reduced to zero. Through May, global export volumes of New Zealand dairy products were up 5% compared to the same period last year despite lower shipments of cheese and butter, highlighting the sector's efforts to diversify production across multiple value-added revenue streams. Domestic consumption, though small, continues to grow slowly, driven by population growth and rising health consciousness.