Price volatility impacts NZ dairying

by | Aug 30, 2023 | Global, Prices

Infometrics Senior Economist Nick Brundson highlights forecast 2023/24 payout will fall below operating expenses for the average New Zealand farm, but it’s part of the broader volatility of pricing and the evolution of the industry post “peak cow”.

The latest drop in Fonterra’s forecast payout amounts to a NZ$2.7bn fall in revenue for dairy farmers, on top of the NZ$2.0bn drop in the previous season. DairyNZ forecasts that costs will ease slightly, taking the break-even point down to NZ$7.51kgMS for the 2023/24 season – an improvement, but still higher than revenue. The reduction in break-even is in part driven by farmers deferring expenditure to match the lower payout.

High pay outs over the past 20 years prompted conversion of other agricultural land to dairy, and intensification of existing dairy farming land. The dairy sector expanded rapidly between 2000 and 2014, with the area of dairy land rising 34%, and the number of cows rising 44%. Greater intensity enabled even faster growth in production, with milk solids production rising 70%.

Since 2015, the sector has been making more with less. Between 2014 and 2021, dairy land and cows both fell 3%, but milk solids production only fell 1%. Looking ahead, the Climate Change Commission (CCC) assumes that the sector will continue to make more with less. The CCC baseline projections are for a 10% reduction in cows between 2021 and 2035, but only a 2% reduction in milk solids.