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Global dairy payouts to fall to stable levels - report

By Neil Merrett , 05-Aug-2008
Last updated on 05-Aug-2008 at 15:44 GMT2008-08-05T15:44:52Z

The ‘exceptional prices’ being paid for dairy products on the global market are expected to continue declining from recent peak levels, though robust demand will help stabilise costs, says New Zealand’s agricultural ministry.

While demand in emerging markets is unlikely to diminish, the recent slowdown in economic growth is expected to take its toll on other markets both this year and next, the ministry stated, as part of their agricultural outlook report released this week.

The global price paid for milk solids by the industry is therefore expected to fall to a more consistent level during the next few years, albeit above payments received before 2006, the report stated.

In New Zealand alone, which is one of the world’s leading dairy producers, the average payout to farmers for milk solids during the season ending in March 2008 was found to be at NZ$7.55 per kilogram, their highest rate since 1965, the ministry said.

The average payout from cooperatives operating in the country in 2009 is expected to decline to NZ$6.90 for the 2009 season ending next March, falling to a more stable rate of about NZ$6 over the proceeding years.

The ministry said that demand from oil producing nations for dairy goods was likely to remain strong over the coming years.

Production boost

New Zealand is therefore lifting its production and exports forecasts steadily over the next year, with Australia also expected to step up supply as both countries fight off the impacts of ongoing drought.

The US may also post higher levels of milk production due to increasing yields per cow, the report added. Similarly, a two per cent rise in production quotas amongst EU member states is expected to provide additional milk solids amounting to 19 per cent of New Zealand’s total predicted output for the 2009 season.

Demand growth

During the previous milk season, which ended 31 March 2008, dairy export sales from New Zealand increased by 25 per cent to NZ$10bn, aided in part by strong milk solid prices.

Emerging markets like China have helped push this growth, particularly in the case of more oil-rich nations that are receiving higher incomes. The report estimates that the Organization of Petroleum Exporting Countries (OPEC) accounted for 21 per cent of New Zealand’s export value.

While this is primarily the result of demand for milk powders, New Zealand dairy exporters have also found growing opportunities for higher-value consumer products like cheese and yoghurts, the report stated.

Developing economies like China, India and some South American countries are also expected to step up dairy production and imports in the near future, according to the report.

Potential supply turnaround

The report suggests some kind of turnaround to a number of high profile disruptions to the global dairy supply in recent years, dating back to the initial impact of EU Common Agriculture Policy (CAP) reform in 2003.

Two years worth of drought in key agricultural regions of Australia and similar adverse weather in New Zealand this year were also identified as key factors.

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