Tag Archives: Dairy

NZ Lamb and Dairy Outlook 2013/14

Bayleys Real Estate Country magazine included an article on the outlook for New Zealand’s agricultural sector which was written by NZX Agrifax.

Dairy Sector

NZ DairyWith regard to the Dairy Industry the effect of the drought in the latter part of 2012/13 season slowed production. This was also the case with other countries as the domestic market seems to have absorbed their output. So this lack of supply combined with a steady growth on demand has resulted in high dairy prices for a sustained period of time. With prices remaining high there is now the chance that milk production will increase especially in the US where their elasticity of supply of milk is fairly elastic. New Zealand is forecast to have a good milk production season as pastures have recovered from the drought. See graph below for forecasted milk prices.

Lamb Sector

NZ DairyThe recovery in lamb prices has mainly been down to the increasing demand from the Chinese market. During the first 10 months of the season, over 80,000 tonnes of lamb was exported there which accounts for 29% of NZ’s total lamb exports. That’s up from 44,000 tonnes over the same period last year. There has been in particular an increase in demand for higher value items such as legs and shoulders. This led to an increase in price as supplies to traditional markets was now reduced.

New Zealand’s White Gold

Fonterra got a mention in the Business section of The Economist recently. Some significant facts about the Dairy industry in New Zealand and the co-operative Fonterra:

* Dairy produces 25% of export revenue in NZ
* It makes up 33% of the world dairy industry
* Fonterra makes up 90% of the dairy industry in NZ
* Fonterra’s annual revenue = NZ$20 billion
* Fonterra opeates in 100 countries and has 10,500 farmer owners.
* 20% of New Zealand Dairy products go to China

Recently Fonterra had made it clear that it is prepared to let non-farmer investors buy in for the first time – they intend to raise NZ$500m with the issue. Why are they looking to non-farmer investor? Although they have made shrewd investments in Asia and Latin America, in more developed markets health worries and higher prices have cut demand. Countries like China are a threat to the Fonterra’s standing on world markets. Furthermore with milk prices down 20% from last year farmers are concerned that non-farming ownership will cut their return further and that there will be a move away from a farmer-owned co-operative.