Last year, NZ’s dairy exports were worth $19b.
NZX head of insight Julia Jones emphasised the forecast in NZX’s 2021 Dairy Outlook is contingent on a number of factors lining up.
“It’s a point in time with what we know today, this is what we believe it will look like in the future,” Jones said.
These factors include the assumption that average prices the industry has achieved over the past five years will continue and there will be a further decline in land used for dairy farming and overall herd size in NZ.
“The amount of cows that we are able to milk will reduce, science and technology will support potentially keeping production the same at best – it might drop 5% (by 2030),” she said.
It expects an acceleration in the decline of cow numbers on the back of the Climate Change Commission’s advice of a 13% reduction from 2019 levels of 4.9 million by 2030.
The land used for dairying has been slowly declining since 2016-17, down 1% over the 2018-19 and 2019-20 seasons.
Following the average trend over the past five seasons, the number of effective hectares in dairying would reduce by around 30,000 hectares to about 1.7 million hectares by 2030, from 2019-20 levels.
It also accounted for changes inside the farm gate due to new government regulations around environmental policy and greater pushes by farmers and companies to show their green credentials.
It assumes the last decade’s productivity trends will continue over the next 10 years, which will see per cow production growing from 385-431kg MS per cow in 2030.
While per cow production could lift, the 5% fall in overall milk production equates to production falling from an estimated 1.94 billion kg MS in the 2020-21 season to 1.84b kg MS.
The report also believes the impact of NZ’s climate change policies will not be as great as first thought.
While it was likely there would be a short-term hit to milk volumes, advances in animal breeding would see cows become even more efficient in converting grass to milk.
“There is every opportunity to see milk production per hectare grow, while emissions fall. Costs will fall, due to less supplement feed required and as a result, profit grows,” the report said.
Milk production will become more and more efficient in NZ, the quality will continue to improve and production will most likely not fall as sharply as some believed.
On the export side, over the past five years there has been greater growth in infant formula and liquid milk and cream exports than any other category.
If milk starts to shift away from base whole milk powder (WMP) and that the growth trend of most other commodities continues in the way it has done over the past five years, there would be a much greater proportion of milk attributed to ‘value-add’ type products.
“This is particularly the case for liquid milk and cream, which has seen exponential growth rates since 2014-15 and has seen a particularly large push through the pandemic,” it said.
Jones says ingredient exports would be further valued and Fonterra was shifting into the higher-value ingredients market, creating sports medicine and paediatric products.
“It’s about increasing the value of the product and there’s lots of ‘what ifs’ around that,” she said.
Jones says as consumption around the world continues to grow, if supply is reduced but the quality of the product increases, this provides opportunities for better pricing.
She says NZ farmers are a lot better than they might realise when it comes to dairy production. They were agile, focused on their animals and there were still opportunities to produce good volumes of milk within tighter environmental boundaries.
She had full faith in the country’s processors and farmers that it was a possibility if they did all the right things on-farm and maintained their focus on offshore markets.
Jones says those customers wanted a dairy product that was natural and boosted their immunity to covid.
“At the end of the day it’s not about what we like, it’s about what our buyers like and we need to be focused on what these buyers want,” she said.
