New Zealand dairy farmers have lost a key competitive edge in
the international market, a leading financial researcher
Rabobank director of dairy research New Zealand and Asia
Hayley Moynihan authored the report No longer low-cost milk
'down under', which said traditionally low-cost pasture-based
dairying regions, such as New Zealand, had lost their ''cost
advantage'' because of increased input costs.
A 72% lift in milk prices in 2007-08 and continued high
prices in the following years had brought about a steep
increase in production costs, Ms Moynihan said.
The continued strengthening of the New Zealand dollar and
increased labour and interest costs had seen the cost of
production rise steeply, Ms Moynihan said.
The United States was now producing dairy as competitively as
New Zealand, she said.
The New Zealand dairy industry had to look to other avenues
to ''stay ahead of the pack''.
''Efficiencies achieved downstream in milk processing and
marketing via a strong route to market and established supply
chain relationships will likely play a greater role in
differentiating competitive export companies and industries
into the future,'' Ms Moynihan said.
Her thoughts were echoed by DairyNZ general manager of
development and extension David McCall, who returned recently
from the US, where he was investigating the issue. New
Zealand lost its position as the cheapest producer of dairy
about five years ago, Dr McCall said.
South American dairy farmers had emerged as the new
lowest-cost producer and New Zealand dairy farmers were on
par with those producers in the United States, Dr McCall
''The real issue is losing our competitiveness, the lowest
cost is part of it, but it's not all of it,'' Dr McCall said.
''We are producing less for the dollars we are putting in. A
lot of it has been driven by on-farm inflation.''
Since 2008, on-farm inflation had run ''well ahead'' of the
consumer price index, he said.
Most of the costs had been fixed costs and there was very
little farmers could do about it, he said.
However, farmers needed to ''keep their eye on the
''They need to keep themselves in a good position and not
take on too much debt when the times are good. Just because
the milk prices are higher they can't lose sight of their
business,'' Dr McCall said.
Further intensification would not help the problem as ''the
cost of putting up a barn in the [United] States is 40% of
what it is here'' and he believed New Zealand owner-operated
dairy farms were ''just as efficient'' as larger producers
''There's no notable economies of scale to be gained in New
Zealand,'' Dr McCall said.
While the sector had a ''good future'', farmers needed to
maintain a comfortable level of debt to cope with the
volatility of the market, he said.
Increased production in the US could lead to a price
correction, he said.
''We don't really notice it [increased costs] in the better
years. When the volatility has a downturn, that's when it
shows up,'' Dr McCall said.