NZ coins it on global dairy demand

An international bank says New Zealand is best placed to capitalise on the global dairy boom
Issue date 17 August 2007

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An international bank says New Zealand is best placed to capitalise on the global dairy boom. Senior Rabobank dairy analyst Tim Hunt predicted that demand for dairy products would remain strong over the next three to four years, driven by a boom in the global economy and economic growth in developing countries. H unt said several structural trends had constrained supply growth in traditional export regions, so that global supply had been unable to keep pace with the speed of demand growth.

“These trends include the reduction in government support to the EU industry and rising costs of production in Oceania,” Hunt explained. “For several years the gap between rising demand and slow supply growth was met by a drawing down in intervention stocks previously accumulated in the US and EU, but these stocks are now empty.” O verlaying these structural trends were a series of temporary supply shocks that have sent a tight market into significant deficit and lit a fire under global prices. “These supply shocks include the rapid development of biofuel, which has pushed feed grain prices to record levels; the drought in Australia; flooding in Argentina; and the introduction of export taxes or bans in several countries to help alleviate domestic dairy price pressures,” he said. “The key question is how sustainable the current boom will be.” unt cited the projected growth of the global economy over the medium term, the strength of corporate and government promotion, breakthroughs in significant markets and the fact that the biofuel effect is unlikely to recede quickly as the foundations of the supportive global environment. Demand and prices will remain high unt said downside risks did not loom large at present.

“Demand outlook appears solid, exporters will have trouble keeping pace and new exporters will take time to get up and running,” he said. “Prices are expected to remain, on average, well above their historic levels over the next three to four years. The New Zealand dairy sector is in a prime position to capitalise on these favourable global market conditions. It is the only significant exporter able and willing to expand supply in the short term.” Meanwhile, Rabobank said confidence continued to climb among New Zealand’s farmers, led by the buoyant dairy sector. The bank’s latest confidence survey found that 40% of farmers expect the economy to improve in the next year, up significantly on 22% in the previous survey. airy farmers had the brightest outlook of all agricultural producers, with 78% expecting the agricultural economy to improve, a big increase on 48% in the previous survey. – Alan Harman

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