Addressing Business Side in Dunedin yesterday, Mr Harvey said a slow turnaround could be expected. Medium-term, it was looking very positive with global dairy demand accelerating.
Global markets had been awash with milk and he had never seen a year when there was such strong growth from the major producers supplying export markets. Import demand for dairy had been good but not sufficient to soak up surplus volumes.
There was "no doubt" that China was a massive market for dairy but Chinese buyers had been cautious, as had many global buyers.
They had been very strategic, buying on a short-term basis, "loading up" when they thought the market was right and then stepping back out.
The Chinese knew there was a lot of milk around and they were waiting for the market to fall as much as it could, then they would come back into the market.
The same applied to other big players in the global market, Mr Harvey said.
Rabobank believed there was going to be a significant shortage of milk in the Chinese market in the next three to five years, despite the Chinese trying to turn around their own industry.
While their production was growing, it was certainly not at the rate that domestic consumption was growing.
Over the medium term, he did not think China would be able to erode that gap and there was a huge opportunity for the New Zealand dairy industry to continue to supply that market.
New Zealand had a great advantage, with close access to market and the free-trade agreement.
While there had been considerable weakness in the past six months in dairy commodity export prices, there was now some evidence markets were starting to bottom out.
The GlobalDairyTrade system provided a good pricing trend and it was also bouncing back.
Rabobank took a five-year view on market price and used whole milk powder as the proxy.
Over the next five years, it believed whole milk powder would trade roughly between $US3300 and $US3800 a tonne.
At that price range and at 80c against the US dollar, that meant about $NZ5.50-$NZ6.30 per kg ms.
New Zealand was well placed with low-cost milk and proximity to Asia and it was producing a safe product, but there would be challenges.
Volatility and complexity would be key features. Costs were rising and expansion would not be easy, he said.
Asked what effect the Trading Among Farmers scheme would have on the forecast payout price, Mr Harvey said he had not followed Taf closely but he could understand what Fonterra was trying achieve.
There was enormous growth potential in global markets and he could understand Fonterra trying to shore up its capital base, reduce its redemption risk, grow its business and make sure it took advantage of that growing demand.
