It won’t happen overnight, but the US dairy export market will increasingly compete head-to-head with New Zealand’s export market, according to Rabobank’s Tim Hunt.
The New York-based strategist, who leads a team of 12 dairy analysts reporting to Rabobank on the state of the global dairy industry and projections for the future, made a presentation to New Zealand Rabobank staff at the Tempero Centre at LIC last month.
«Arise the Hunter: The Re-orientation of the US Dairy Industry and Implications for New Zealand» was a fascinating look at the rising US dairy export industry on the global market and how that will affect New Zealand’s success.
Hunt said while overseas customers still had a huge attachment to New Zealand dairy products, and a «mythical belief» around the quality of the products, US farmers’ thinking had recently undergone a paradigm shift.
A group of Washington farmers who recently visited New Zealand reported their surprise that it was not the low-cost farming region it used to be – by 2012, costs were more or less even for producing milk in New Zealand as California and the upper Midwest of the US – and they believed they had what it took to give New Zealand a run for its money.
The US is the world’s third-largest milk pool, producing 90 billion litres of milk annually (five times that of New Zealand), which accounts for about 15 per cent of global supply.
The US has 100,000 dairy farms, and cow numbers have increased dramatically – farms with 1000-plus cows account for 50 per cent of US milk production, up from 25 per cent a decade ago.
US farms are designed for the domestic market, which has slowed in recent years: liquid milk is flat or declining, cheese is growing but slowing, and yoghurt is steady but only accounts for a small portion of the market.
The commodity price boom has seen international prices rise above domestic prices and as a result, cost competitiveness has increased and exports have steadily grown.
In 2012, the US exported 500,000 tonnes of milk powders and whey – 10 per cent of all US production, and that number is increasing.
«The US used to be ‘the hunted’ – everyone wanted a piece of its market,» Hunt said. «Now the tables have turned; US farmers have found the export market an attractive game to play.»
However, the US is experiencing some hurdles as it adjusts to the world market.
«Because the industry was set up to service the domestic market, they have the wrong plants, the wrong products, challenging regulations, weak relationships with offshore customers, and poor access to several important markets,» Hunt said.
«Circumstances harder for the us dairy industry to change include free trade agreements, the Federal Milk Market Order, which makes it harder to compete abroad, and balancing domestic and offshore market requirements.
«However, progress is being made. Plants are being tweaked to make export products, new plants are being built to service export markets, new industry management is coming into practice, market access has improved, and relationship with offshore customers are being strengthened.»
There were strong implications for the New Zealand export industry and the country needed to be on the ball if it wanted to keep its place as the «gold standard» of international supply, he said.
«New Zealand’s on-farm cost advantage has largely been eroded; premium prices for exports and post-gate supply chain efficiency are now key to New Zealand farm profitability,» he said.
«New Zealand is now ‘the hunted’. Other markets are trying to replicate our success. To some extent, the US will operate alongside the New Zealand industry, and it will also increasingly compete head-to-head with New Zealand.
«Maintaining New Zealand’s edge in post-farmgate processing and marketing will be crucial to sustaining returns on-farm.»
Source: Stuff
