Thursday, 16 February 2012 10:04

Solid dairy growth forecast

EXPECT THE global dairy market to grow strongly: that's the forecast from global lender Rabobank.

Its new report Global Dairy Outlook: Show me the Money says the global dairy sector looks set for a future of solid market growth – to some extent the envy of the food world.

China is expected to provide most of the growth and New Zealand, with its free trade agreement, could reap the most benefits, it says.

The report examines the outlook for global dairy over the next five years, and who is profiting from the changed market environment in which the dairy industry operates.

Rabobank senior dairy analyst Michael Harvey says growth will be dominated by developing markets, many needing outside help to supply enough product to meet rising appetites.

"This will sustain an era of trade growth and provide a substantial opportunity for many farmers, traders and processors in export regions.

"A lot of the global growth will come from China, and New Zealand is well-placed to capitalise on that growth given its existing trade linkages to the market which are supported by a trade agreement."

With most of the growth in consumption volumes expected in regions already short of milk, such as China and South East Asia, Harvey says a big share of supply will need to come from export regions.

Rabobank's report shows the cost of producing milk in these exporting regions remains much higher than before the 2007 commodity price boom.

"Importantly, we also find evidence the gap between 'low' cost and 'mid-table' cost milk producers is narrowing, providing a more level playing field for exporters in a range of regions, and increasing the importance of export cooperatives in ensuring their farmers are best placed to benefit from opportunities abroad," Harvey says.

The report expects production costs to remain elevated for the medium-term, supporting a high trading range for dairy commodity prices.

Harvey says in essence, Rabobank's analysis indicates the vast increase in money flowing through the dairy supply chain in recent years has been either 'eaten up' by farmers' input costs or capitalised into the value of farmland.

"On-farm profitability has improved somewhat, but not enough in most cases to improve the average return on assets despite the increased difficulty of managing what has become a more volatile business.

"Nor has there been a large improvement in the position of the downstream dairy processing industry, though the sector has done extremely well to defend or modestly improve its position despite the challenge of rising costs."

In reality, Harvey says, an era of strong demand and heightened prices for dairy has brought as many challenges as opportunities.

"Experiences for dairy processors have varied depending on the which part of the sector they have exposure to – despite a step-change in ingredient costs and, for many, a difficult market environment, processors have generally maintained or improved their margins.

"Outsiders looking to enter an industry now in a 'golden age' will need to carefully choose their investments.

Those already inside need to closely track industry direction and competitor moves to ensure they manage the risks adequately to position themselves to prosper."

More like this

Keep an eye on the sky

After an uninspiring ten months, the start of 2015 has understandably created a great deal more optimism on the sellers’ side of global dairy markets. 

Giesen stamps mark in China

Giesen Wines is earning a growing following in China, where it has been exporting for the past five years.

More from this category

Whitehaven Wine Company

PALM KERNEL use in Taranaki has skyrocketed for eight years and J Swap stalwart John McDonald has been in the thick of it from day one.

Whitehaven Wine Company

A NEW milk plant for a Maori-owned farming operation is on track for opening August 1. It will make whole milkpowder (WMP) for Vietnam and other Asian countries.

Whitehaven Wine Company
CONCERNS OVER Japan's economy following the March 11 earthquake and nuclear problems have cut global grain prices. But with supply tight in New Zealand, it remains to be seen if the slump will translate to lower feed prices here.
Whitehaven Wine Company
SHAREHOLDERS IN New Zealand Farming Systems Uruguay (NZFSU) have been urged not to sell before an independent adviser reports on the latest takeover bid by the company's majority owner.
Whitehaven Wine Company

IF YOU'RE saddled with high costs, increasing output can be more profitable than cutting costs, says a consultant specialising in optimising returns from dairying.

Whitehaven Wine Company

LIC's core business is helping dairy farmers improve the productivity and profitability of their farms. We do this through animal genetics, farm software, milk testing, farm automation, disease testing, sale of ear-tags and RFID enabled devices, farm consultancy. This is all supported by approximately $20m in annual investments in science, new technology development, new product development and service capability improvements.

A COMPANY managing national breeding objectives has been overhauled following a review.

FONTERRA FARMERS are hailing the co-op's decision to regain full control of retail service provider RD1.

FARMER OWNED co-op CRT's turnover has surpassed $1 billion for the first time. It has reported a 36% increase in turnover to $1092 million in the year to March 31, 2011, with operating surplus up 66% at $8.4 million.

» Latest Print Issues Online

Milking It

Second opinion?

The World Health Organisation recently declared that glyphosate was “probably carcinogenic”, causing a bit of a fuss given the ubiquity…

Lewis to cream the south

Incredibly popular Lewis Road Creamery chocolate milk will be available in the South Island this winter.

Events Calendar

Calendar

Calendar

Upcoming Events - Check out our calender for upcoming rural events going on around the country.

» Connect with Dairy News

Finance-Icons-email

Markets

» Popular Reads

Dream closer to reality

PALMERSTON NORTH student Braydon Schroder is the latest winner of the Hugh Williams Ravensdown Memorial University Scholarship.

Farmers urged to question board

Fonterra farmers are disappointed with the half-year results announced by Fonterra today, says Fonterra Shareholders Council chairman, Ian Brown.

Rural Life

Pukekohe grower wins title

Hamish Gates from Pukekohe has beaten off tough competition to be crowned New Zealand Young Vegetable Grower 2015.