23 Apr 2015

Low milk prices could be an advantage

2:56 pm on 23 April 2015

Lincoln University's Agribusiness and Food Marketing Programme director says New Zealand dairy farmers could turn the low milk prices they are struggling with this season to their advantage.

Nic Lees says the low returns are causing farmers to cut their costs and refocus their attention on pasture-based production again.

He said that was going to restore the New Zealand dairy industry's advantage of being a lower cost producer, compared with many of its international competitors.

"New Zealand certainly is one of the lower cost producers. There's been some erosion of that. Land prices have made a major impact on that, particularly where farmers have taken on debt.

"But given that, we have a unique ability in New Zealand to graze cows 12 months of the year outdoors. There are relatively few places in the world that can do that. So New Zealand can produce milk well from pasture and pasture is the lowest cost feed that you can provide for dairy production.

"We've seen this happening already, that the fall in dairy prices has refocused farmers' attention on managing pastures and reducing the use of supplements and other inputs and I think you'll see that as a result of that, the cost of production on average will be coming down.

"That does have the potential to make us as competitive as anyone in the world and certainly more competitive than countries that are required to house cows over the winter and feed lots of supplements."

He said the price recovery was going to be slow and dairy farmers needed to be profitable at $5 a kilo of milk solids to survive.

"I think the DairyNZ figures are that the average over the last 10 years was about five dollars 80, and one of the dangers that we have with the volatility that we see in dairy prices and all commodity prices at the moment, is that it's very easy to lose sight of the average price and as soon as the price goes up to seven or eight dollars, our natural psychology is to expect that that's maybe going to continue.

"Whereas, if we actually look at the average price over the last 10 years and if you think of that as being $5.80, that means at times it's going to be significantly below that, so farmers need to set up their systems so that they can be profitable and resilient in the highly volatile times where we're seeing effectively prices going from record highs to record lows within 12 months."