Is dairy expansion nearing its peak?

The question of whether New Zealand has reached peak dairy has been occupying the minds of a group of University of Otago academics.

The researchers at the university's Centre for the Study of Agriculture Food and Environment (Csafe) haven't yet answered that question, but their arguments for and against the notion have provided fuel for many a tea-break discussion.

Csafe director Associate Prof Hugh Campbell said there was a view the number of dairy farms in the traditional dairy strongholds of the Waikato and Northland was falling, due on part to urban sprawl, with the country's dairy growth being driven from the South Island.

The North Island herd peaked at 3.831 million in 2002.

In the past three years, cow numbers have been under 3.796 million.

Fonterra recently reported that in the last financial year milk production grew 0.4% to 1.3 billion kg milk solids.

South Island production grew10% and the North Island, which was hit by drought, fell 4%.

For two and a-half years Csafe, in collaboration with AgResearch, has been working on a project called Rural Futures, one aspect of which looks at life after dairy and life after sheep.

Prof Campbell said it raised the question of whether peak dairy had been reached, as happened with sheep when numbers hit 70 million in 1982-83.

"We know we have had peak sheep.

"The question is, have we reached or are we about to reach peak dairy?"

He said peak dairy could be measured in terms of milk production, but for this exercise it was measured in cow numbers.

One argument supporting the notion that peak dairy had been reached was the end of cheap credit which had help drive recent expansion.

"What are the chances of getting back to easy and cheap credit?" Prof Campbell asked.

The end of cheap credit made conversion of land in provinces like Southland more difficult, as had tighter environmental rules.

Prof Campbell said the proposal for large-scale dairying in the Omarama Basin was a sign the availability of cheap land was diminishing, especially in the North Island.

Rising energy costs would hit intensive dairying harder than other sectors.

There appeared to have been a major switch in Fonterra's growth strategy from growing local production to sourcing milk from overseas, Prof Campbell said.

Earlier goals of 4% annual growth in milk production had not been mentioned recently, he said.