It’s all because of the bumper year the sector has just enjoyed.
Dairy export revenue in the 2013-14 June year had not been officially recorded when this year’s Situation and Outlook for Primary Industries was prepared. Ministry for Primary Industries forecasters estimated it had surged by 31% to $17.6 billion, thanks to high international prices and a considerable lift in production.
Peering four years into the future, the ministry’s analysts reckon the value of the country’s dairy exports will have grown to $18.4b in the year to June 2018.
Demand for branded New Zealand dairy products is strong, they say, and “manufacturers are becoming more focused on customer needs to produce value-added product to maximise profits”.
But the dizzy pace of growth in the past year can’t be maintained and receipts over the next 12 months are expected to fall by 10.1% to $15.8b, the result of a forecast decrease in prices and modest increase in production.
Growth in the four years to 2018 will amount to 4.7%, just 1.2% a year.
Much stronger growth is forecast for other sectors over that period – meat and wool (+16.8%), “other” agricultural products, comprising live animals, arable, other food products and other agricultural products (+16.6%), horticulture (+14.8%), and fisheries (13.9%).
Forestry receipts are forecast to fall by 2.5% to $1.6b. Dairying’s share of total primary sector export receipts accordingly will slip from 47% to 45% whereas meat and wool’s share will rise from 21% to 23%.
The outlook significantly changes when 2015 is the starting point. Dairy sector exports in the three years to 2018 are forecast to increase from $15.8b to $18.4b, or by 16.4% (5.5% a year), ahead of meat and wool (4.9% a year), fisheries (4.8%), other (3.9%) and horticulture (3.2%).
Forestry receipts will be growing again, by 2.2% a year. The ministry’s report shows total export values from agriculture, fisheries and forestry are projected to reach $40.8b by the 2018 June year, up 8% from the just-ended June year.
The growth in exports of manufactured, value-added products has been notable, the report said. For dairy, exports of consumer-branded products now make up almost 10% of dairy export value.
What happens to export revenue over the forecast period will be strongly influenced by the exchange rate and weather-sensitive production.
The ministry’s dairy forecasts assume a modest rise in domestic production, increasing international dairy prices and a depreciating NZ dollar.
These factors, along with the demand for dairy products outpacing increases in world milk production, translate into a farmgate milk price of $7.97/kg milksolids (MS) in the 2018 June year.
Milksolids production is estimated to have increased by 9.5% to 1815m kg MS in the past year to May 31, a strong recovery from the previous drought-affected season.
The modest increase forecast for the 2014-15 season reflects a continued long-term trend in increasing cow numbers and more moderate growth in milk yield/cow, which is expected to ease back to its long-term average.
Over the rest of the outlook period moderate increases in production are forecast. The ministry has assumed gradual increases in cow numbers and milk yield per cow, as well as average climatic conditions.
For the longer term, environmental issues are brought into considerations.
“Over a longer term, finding innovative ways of dealing with environmental concerns arising from dairy intensification, especially in the area of nutrient management, is likely to become an increasingly important challenge for the dairy industry.”
Onwards and upwards
While dairy export receipts are forecast to slide 10% from an extraordinary high this June year, total meat and wool exports, including hides and skins, meat-related products, and manufactured wool products, are expected to increase 1.7% to $8.2 billion.
It’s onwards and upwards from there, Ministry for Primary Industries’ projections show, to reach $9.4b by 2018, with the main driver being increased prices, mainly for beef and lamb products.
Rising Asian demand for red meat is putting pressure on a contracting global supply, the ministry said.
Domestically, dairy farming expansion is recognised as a continued threat to the meat industry, but productivity improvements in lambs born per ewe and average carcase weights of slaughtered animals are projected to offset static to declining herd and flock numbers.
Beef +Lamb NZ Economic Service executive director, Rob Davison, agreed growth in Asian markets would be strong but he thought prospects in some other markets looked “a bit difficult”. A strong dollar is taking some of the edge off prices, he said. Growth of 4-5% a year for meat and wool, as the ministry forecasts over the next four years imply, would need an easing of the exchange rate.
“But if the world economy picks up a bit, that could be right,” he said.
His immediate challenge, however, was pondering how many new dairy farms NZ would have in the next year or so and how many sheep they would displace.
