More milk but what about markets?
Expansion in milk production is the buzz topic in farming in recent times with a target increase in milk production of 50% in the period up to 2020. It is a topic that has been written about extensively and discussed at farmers conferences all over the country. It is also being discussed at industry and processing level. To date, the summary of these discussions and debates seem to suggest that the target of 50% can be achieved at farm level but, apart from talking the talk, there is little concrete suggestions or movement from the processing or marketing side.
With all the improvements in dairying technology and dairy breeding since 1985 and the continuing increase in the number of well bred dairy heifers, the least of the problem in increasing milk production by 50% will be at farm level, if milk prices and finance availability is favourable. The forecast for dairy prices is positive for the medium- and long-term, but there will be volatility in prices from time to time.
The general forecasts for milk prices vary between 23 and 33 cent per litre going forward, with around 30 cent being a popular figure. The price volatility will be due to changes in world market prices on which we will be largely depending. Forecasts for dairy prices are based on an increasing world demand for dairy products and a limiting potential for milk expansion in many countries.
International studies indicate that less than half the increasing demand for dairy products in China can be domestically produced, thus indicating huge demand for dairy imports as their 1.3 billion people become more prosperous. A similar situation is likely to arise in India and other parts of Asia. However, economic slowdown in those countries would have a bad effect on prices. I have visited a number of Asian countries, including China, in recent years and their dairy enterprises are generally so primitive they are unlikely to make any impact on world supply for a very long time.
Expansion in New Zealand, which produces only 2.5% of world milk but 28% of world trade, is likely to be limited to about 2.5% per annum due to land, water, finance and environmental restrictions. However, there has been a recent spike of 10% increase due to favourable weather. Three of the top world milk producers, USA, China and India are already over-pumping their ground water reserves and, as dairying is a very heavy user of water, this will limit their potential for expansion.
