Transcript Dairy Production in NZ

Market forces affecting supply of NZ Dairy Products
Our Learning road map
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2.
3.
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5.
Dairy Products- what are they and who do
we sell them to?
How significant is NZ in terms of world
trade, who are our competition?
What has happened to supply over the
last umpteen years?
What are the Market forces that have
affected supply?
Which market forces have been more
signifcant?
Dairy products what are they
Question:
List down the top 5 dairy products
produced in NZ.

See if you can rank them in order of
volume produced.
Dairy products what are they
Taken from http://www.godairyeducation.co.nz
Dairy products what are they
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Top 5 NZ exports
WMP
 Butter
 SMP
 Cheese
 Casein
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Any ideas on who is buying all
that WMP, Butter and SMP?
Who do we sell them to?
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NZ dairy exports went to about 151 countries. Key markets
being China, the US, Japan and the EU.
Developing countries are the destination for about 72% by
export value.
Revision – top four export
destinations are?
EU
China
Japan
The NZ Advantage
New Zealand has many competitive
advantages:
 Our climate is temperate and our soils are
fertile = a pasture based feed system.
Youtube – mega dairying in the US
We have a good international reputation.
Anchor Butter advert
 Because dairy farming is important to New
Zealand, money and resources are put into
the industry.
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NZ as a world player
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New Zealand accounts for about onethird of cross-border trade in dairy
products, but we only account for a little
over 2% of total world milk production.
By comparison the US accounts for
about 12% of total world production.

So why does the US buy so much milk
product from NZ?
NZ on the world
stage
Supply trends
Over the past 10 yrs, NZs Milk prod has
grown by 3.7% a year
 2009/10 = poor climatic conditions wet
spring and drought over summer ment a
dip in supply
 2005/6 herd size has increased, but
herd numbers decreased. Overall
numbers of cows hare steadily
increased. 2005/6= 3.8 mill c.f 2009/10
= 4.4 mil
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Our NCEA Question
Explain in detail how the selected market
force has, in recent times, affected the
supply of your primary product.
Easy Peasy!
Dairy – market Forces
Market forces that affect supply:
• seasonality
• price trends
• market manipulations
• political intervention
• exchange rate.
The question ;-)
Market forces I recommend to select:
 seasonality
 price trends
 market manipulations
 political intervention
 exchange rate.
What has happened to dairy supply
over the last umpteen years?
New Zealand dairy production has risen 77
percent over the past 20 years - from
three million dairy cattle in 1989 to six
million dairy cattle in 2009.
How do you get 77% from a doubling of
cow numbers?
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Over the past 10 years NZs milk
production has grown by an average of
3.7% a year.
09/10 = 16,500 million litres
99/00 = 11,500 million litres
First – Seasonality!
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In May 2011, production in New Zealand was
4 per cent ahead of a year earlier and output
may reach a record after mild autumn
weather boosted pasture growth.
New Zealand's milk output might surge 5.7 per
cent in 2011-12, the Ministry of Agriculture and
Forestry said on June 14 2011.
And then the snow – but the impact of the
weather on milk production should be minimal,
due to good body condition scores of most
stock and adequate feed reserves.
Affects of pasture growth
conditions on seasonal supply
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Poor or good pasture growth conditions have an
immediate effect on milk production, but also can
have a delayed effect due to changes in cow
condition score.
For example in May 2011 NZ (as a whole) had a mild
autumn with above normal pasture growth.
Consequently NZ milk production was 4% above the
average autumn production. This was the immediate
effect of seasonality. However over this same
autumn, cow condition also improved. So in the
following spring cow condition was higher and when
NZ experinenced a cold snap (snow) in September
2011, milk production was maintained as farmers
were able to ‘milk off the cows backs’.
Then – Price trends
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Price trends for NZ milk products have tended to increase
over the last 10 years
http://www.interest.co.nz/charts/commodities/dairy-prices
Season Average Dairy Company total Dairy Company payout
payout ($/kg milksolids) (inflation adjusted)a
1985/86
2.29
4.37
1986/87
2.03
3.27
The payout to NZ dairy
1987/88
2.34
3.53
farmers took 18 years to go
1988/89
3.28
4.73
from $2.30/kg to $4.60
1989/90
3.59
4.82
1990/91
2.42
3.16
In the last 6 years it has
1991/92
3.34
4.32
almost doubled again
1992/93
3.66
4.67
moving from $4.60 to $8.10
1993/94
3.32
4.19
(2010/11 season)
1994/95
3.40
4.11
1995/96
3.99
4.73
1996/97
3.63
4.25
1997/98
3.42
3.93
1998/99
3.58
4.14
1999/00
3.78
4.28
2000/01
5.01
5.50
2001/02
5.35
5.72
2002/03
3.66
3.85
2003/04
4.25
4.37
2004/05
4.58
4.58
Price trends in 2011
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Whole-milk powder reaching a record
US$4958 in March 2011.
But has slumped 32 per cent since then as
high prices spurred milk companies in the US
and New Zealand to boost output.
The drive for this increase in price is probably
the increased demand from China.
Chinese demand for New Zealand milk
products last year surged more than fivefold
from 2008 to about 353 million kilograms,
according to Fonterra.
Last Exchange rate
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The NZ dollar
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The three market forces you have used to
answer Question Two (a), (b) and (c) will
vary in their effect on the supply of your
primary product (2). Rank the three
market forces in order of the effect they
have on the supply of your primary
product (2): (Greatest effect) 1 2 (Least
effect) 3 Justify this ranking by
explaining, in detail, the relative effect
of each market force on the supply of
the product.Note: State units and values
where appropriate.