Tuesday, 23 June 2020 09:31

The challenges ahead for dairy

Written by  Peter Burke
Milk payout this season will be under stress, says MPI. Milk payout this season will be under stress, says MPI.

A Ministry of Primary Industries report says the 2020-21 season payout won’t be as high as last season.

It says Covid-19 has impacted the dairy sector around logistics and supply channel disruptions.

However, it notes that despite the recent fall in commodity prices, dairy companies had contracted a high proportion of milk from last season at good prices and this helped. 

But the outlook for the coming season is not good with markets signalling a 14% fall in farm gate prices. 

It says the current range sits between $5.60 and $6.50/kgMS which will be close to, and in some cases below, break-even levels of profitability.

“It has the potential to undermine the financial viability of some marginal and highly indebted farm businesses,” says the report.

The report flags the potential of the drought and shortage of feed as being a factor, but points to concerns around protectionist and subsidised dairying in the US and the European Union. 

It notes that if there is a flood of subsided dairy products on the global market this could add to the volatility and weakening of the dairy market which will impact on New Zealand.

Overall the report is stating what one might expect in the Covid-19 environment. Uncertainty in many areas and questions being asked about whether some trends, such as consumer preferences, will remain once life returns to whatever normal there will be in the future.

The report flags uncertainty and challenges ahead, mostly related to Covid-19.

The good news is that in the past year to the end of June, revenue from primary exports will be up by $1.7 billion on the previous year, helped significantly by dairy exports which were up $512 million from the start of March. 

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