New Zealand’s dairy industry

New Zealand’s dairy industryHon. John LuxtonChairmanDairyNZ

• DairyNZ tvc

IntroducingNZ dairy farming

New Zealand is 1/10th the size of Argentina

Source: IBGE, SAGyPA Indicator Series, ODEPA, OPYPA, LIC, FAONotes: 1) NZ base year is 2000/01 season.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

75

100

125

150

175

Ar-gentina

Brazil

Chile

Uruguay

New Zea-land

Inde

x (2

000

=100

)Mercosul & NZ milk production

2000200020002000200020002000200020002000200020002001200120012001200120012001200120012001200120012002200220022002200220022002200220022002200220022003200320032003200320032003200320032003200320032004200420042004200420042004200420042004200420042005200520052005200520052005200520052005200520052006200620062006200620062006200620062006200620062007200720072007200720072007200720072007200720072008200820082008200820082008200820082008200820082009200920092009200920092009200920092009200920092010201020102010201020102010201020102010201020102011201120112011201120112011201120112011201120110.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

New Zea-land

Chile X Region

Uruguay

Brazil (MG)

USA

Milk

Pric

e (U

S$/k

g fa

t &pr

ot.,

adju

sted

fo

r inf

latio

n, a

vera

ge o

f las

t 12

mon

ths)

Brazil Dairy Industry Background

Source: LIC,USDA, ODEPA, OPYPA, ESALQ

International milk prices

• 1.46 million ha used• >85% grazed pasture• 16.5 billion litres• 8th largest producer• Only 2.3% of world

production

Dairying in New Zealand

Dairy Industry comprises ~25% of NZ’s export receipts

Milk price = international price… no tariffs and support

NZ dairying statistics

Dairy herds 11,691No of cows milked 4.4mVolume of milk produced 16.5 billion litresAverage herd size (cows) 376Average stocking rate (cows/ha)

2.8

Average milksolids per cow (kg)

318

Milksolids per herd (kg) 123,000

How we compareNew Zealand Argentina

Milk production 18.5 m tonnes 9.5 m tonnes

Milk price 2% above world market -11% below world market

Milk consumption (ME per capita & per year)

>350 kg 187 kg

Milk processing into tradeable products

>90% 58%

Export >90% of production ~22% of production

Import ~3% of local consumption

~1% of local consumption

IFCN 2010 Dairy Report

NZ dairy farms vs Brazilian (Goiás) farms

Performance Indices New Zealand

GO - 2009 (average)

GO - 2009 (>1,000 l/day)

Age at First Calving (months) 24 34 29

Cows in Lactation (% of total) 73% 59% 66%

Machine milking (% of herds) 100% 24.2% 94.7%

Production (litres/ha/year) 12.960 1.981 3,579

Production (litres/man-day) 2.730 124 411

Production (litres/cow/year) 4,550 1,993 3,459

Use of artificial insemination 75% 12% 68%

Cost of Labour (R$/man-day) R$125 R$14 R$26

0

10

20

30

40

50

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Cow

s ca

lved

, %

Calving is seasonal

50

100

75

25

Past

ure

(kg

DM

/ha

per d

)

Demand

Supplement required

Conservation required

Spring

Feed supply

The farming structure is evolving towards bigger farms and fewer farmers

1974

/75

1976

/77

1978

/79

1980

/81

1982

/83

1984

/85

1986

/87

1988

/89

1990

/91

1992

/93

1994

/95

1996

/97

1998

/99

2000

/01

2002

/03

2004

/05

2006

/07

2008

/09

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Herds Cows milked

Num

ber o

f her

ds

Cow

s m

ilked

Source: LIC Dairy Statistics, DairyNZ Economics Group

Production by herd size 2009-100-

99

100-

199

200-

299

300-

399

400-

499

500-

599

600-

699

700-

799

800-

899

900-

999

1000

-109

9

1100

-119

9

1200

+

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

Herd size (cows)

Kilo

gram

s Milk

solid

s (m

illio

ns)

Source: DairyNZ Economics Group

6%

28%7%

9%

11%

4%

18%

17%

Production trends  1990 2000 2010

North Island 93% 77% 61%

South Island 7% 23% 39%

Milksolids production

NZ Export Markets

North Asia South-East Asia

Africa and Middle-

East

South and Central America

North America

Europe Pacific -

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

3,500,000,000

4,000,000,000

2000-01 ($m)2010-11p ($m)

$ N

Z FO

B (n

omin

al)

Source: Statistics New Zealand, DairyNZ Economics Group

Major processing companies

• Fonterra Cooperative Group:– 90 percent of milk supply and exports– 40 percent of the domestic consumer market

• 2 other co-operatives: – Tatua– Westland

• 5 other processing companies:– Open Country Dairies– Synlait– New Zealand Dairies– Goodman Fielder

• Farmers own 95%+ of processing capacity

Regulatory framework

DIRA• Open entry and exit• Contracting rules• 20% rule• Raw milk regulations

Fonterra milk price model• Calculates revenue if all milk was processed

into basic commodities & sold overseas• Deducts shipping, processing & freight costs• Balance paid to farmers as milk price• Value add – eg selling premium ingredients/

investment in consumer brands – treated as profit

• Farmers receive profit as dividends on their Fonterra shares, plus price paid for raw milk

Looking ahead 1. Dairy making large & growing contribution

2. Global supply/demand supports NZ growth

3. On-farm business success $83/ha/yr

4. Erosion of NZ’s low cost base poses threat

5. Imperatives for productivity improve remain

6. Public & consumers driving sustainability

7. Public perceptions about dairy are mixed

8. Skilled people increasingly important

9. Unified approach to innovation & adoption

Improving productivityQuestions?