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Cost of Dairying Rises in New Zealand

29 November 2013

Milk production costs across the key dairy regions have converged in recent years, making dairy farming more expensive in New Zealand than in Ireland.

Milk production costs across the key dairy regions have converged in recent years, making dairy farming more expensive in New Zealand than in Ireland.

Production costs have also risen in Australia, but as input volatility has gripped globally since 2007, most of the reasons for the southern hemisphere price rise go beyond the farmgate, say Rabobank agribusiness analysts.

This is according to this week’s Rabobank Agriculture in Focus report, which highlighted the importance of increasing efficiency as input costs rise and remain volatile.

Using farm data up until 2012, the study showed that, while farmgate production costs had fallen in the Netherlands, elsewhere, dairying inputs had trended higher.

In New Zealand, debt on owner operated holdings has more than doubled to almost NZ$20/kg milk solids, which analysts predicted will pressure farmers more as interest rates increase.

Debt was quantified as being 82 per cent higher per kg milk solids than a decade ago following a peak of 145 per cent in 2009.

Further to debt worries, updating infrastructure and de-intensifying farms will see Kiwi production fall while adding further costs as regulations demand sustainable farming and environmental compliance, the report predicted.

Rabobank analysts explained that the nutrient loss targets of the Horizons region cost NZ$3,000 per cow on some businesses and decreased production by over 20 per cent in extreme cases.

Moreover, lower yields will also stem from lower stocking densities and pasture management requirements, although nutrient limit setting will be at the discretion of regional councils, the report added.

Meanwhile, high labour and energy costs have plagued the Australian industry.

The report discussed urbanisation and a mining boom as factors for a lack of dairy workers, exacerbating already high labour costs.

This means a dairy worker’s hourly rate in Australia is 100 per cent higher than in California.

Rabobank findings also showed that, just like New Zealand, trying to farm sustainably is starting to cost the sector.

The 2012 carbon tax was partly responsible for steep power price increases, added to by investment into infrastructure. However, this could be abolished and efficient, low-carbon alternatives could reduce the energy issue further.

Looking forward, Rabobank analysts have predicted 2014 to favour US production and other similar ‘feed-lot’ farms following a relaxation across grain. Similarly, immigration laws could also assist US cost margins.

Therefore, southern hemisphere competitiveness could be reduced as it faces more stringent environmental controls and European farmers speculate on quotas lifting in 2015.

Michael Priestley, Editor

Michael Priestley, Editor

Top image via Shutterstock



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