In a new industry report, Ms Moynihan said traditionally low-cost pasture-based dairying regions, such as New Zealand, had lost their cost advantage as input prices had risen.
They now competed on the global market with a similar cost of production to producers with more intensive farming systems.
The New Zealand dairy industry would have to work hard to ensure it stayed ''ahead of the pack'' in supply chain efficiency, market access, marketing and ''sensible'' regulation, to ensure competitiveness was based on more than just the cost of producing milk, Ms Moynihan said.
Historically, countries in the southern hemisphere had been well known for their low-cost dairy exports.
Extensive pasture-based production systems, plentiful natural resources and low opportunity costs in alternative land uses gave the region a competitive advantage.
However, between 2002 and 2012, the local currencies of New Zealand and Australian dairy exporters had strengthened 75% and 90% respectively against the US dollar, accelerating the convergence of production costs and making US exporters relatively more competitive, she said.
The New Zealand dairy industry had moved to a higher-cost farming system. The structural increase in milk prices globally and locally had driven the quest for increased production, almost at any cost, she said.
''The first signs were there in 2002 when, on the back of milk prices increasing 42% over two seasons, farm working expenses surged 33% per kilogram of milk solids produced.
''The reality check of a 32% lower milk price in 2003, which remained at a similar level over subsequent years, soon saw expenses fall back into line.''
However, the 72% lift in milk prices in 2007-08 and higher prices on average in the years following, brought a steep increase in production costs that showed little sign of abating without a significant change in farming systems or an economic crisis, she said.
Producers were likely to experience upward pressure on milk production costs as they were confronted by a rising interest rate market and the likely impact of future environmental regulations.
A flexible production system at a higher average cost might still be competitive if it provided resilience during a downturn, she said.
With high volatility expected to continue for both milk prices and production costs, the ability to lower inputs and/or costs during periods of abundant global supply would be a distinct advantage.
