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Dairy production up despite poor weather


17 December 2003


Dairy production up despite poor weather

Milksolids production in 2002/03 was three and a half percent higher than in the previous dairy season, despite colder than normal temperatures in mid to late spring and the summer drought in the south-western North Island.

The drought-affected area, Taranaki and Manawatu, grazed 20 percent of the national milking herd. As a result the area's total production for the season was down eight percent from the previous season.

The 2003 MAF Situation and Outlook for New Zealand Agriculture and Forestry (SONZAF) report says the three and a half percent rise in milk production was due to a higher number of cows as well as an increase in average milksolids production per cow.

The report says dairy product export volumes were 20 percent higher than in the previous season, as Fonterra Co-operative Group Limited reduced its inventory.

The volume of milk produced and consequently the quantities of dairy products manufactured and exported, are projected by MAF to continue increasing over the outlook period (2003/04 to 2006/07), in line with the continued expansion of the national dairy herd.

Early in the 2002/03 season international prices for wholemilk powder (WMP), skim milk powder (SMP), cheese, butter and casein fell to their lowest levels for over a decade but started recovering from around September 2002.

The national weighted average farmgate payout for the 2002/03 season was $3.62 per kilogram of milksolids - 32 percent lower than the 2001/02 season.

Payouts are projected to fluctuate over the outlook period, but at higher levels.

Looking to the 2003/04 season, the number of dairy cows is expected to increase but at a lower rate than in previous seasons.

This is primarily because farmgate payouts are expected to be lower than those received in the 2000/01 and 2001/02 seasons, making the expansion of existing farms and the conversion of new farms less profitable.

Export volumes for the 2003/04 season are estimated to rise by only one percent to 1.86 million tonnes, due to last season's export volumes being "inflated" by the run-down of Fonterra Co-operative Group' s inventory. By the 2006/07 season export volumes are projected to have increased to 2.13 million tonnes, up 16 percent on the 2002/03 season, and to be valued at $7.98 million FOB, up 37 percent on the year to May 2003.

The SONZAF report says a key factor affecting WMP prices is the question of Iraq.

Over the past few years New Zealand dairy companies have supplied a large portion of the WMP imported into Iraq through the Oil-for-Food programme.

This programme has now ceased, with control of food programs in Iraq taken over by the US-led administration. Food deliveries to Iraq will continue through until at least June 2004. After then, it will be up to the Iraqis to decide what happens and this presents some uncertainty over that market.

In the long term, advances in technology and continued efficiency gains will be key to allowing New Zealand dairy farmers retain their position as one of the world's lowest cost producers of milk.

International dairy trade is currently characterised by very high tariffs in many developed country markets and the use of export subsidies by exporters such as the EU and, to a lesser extent, Switzerland, Norway and the US.

A successful conclusion to the Doha round of trade regulations will make some headway in lowering these distortions over the next ten years, bringing substantial gains for New Zealand's dairy farmers.

Ends

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