US dairy expert Professor William Bailey said the European Commission had recently released its outlook, which forecast milk production growing less than 2 per cent during 2015-16.
EU farmers have been held back by production quotas for the last 30 years, and there have been fears they might open up the production floodgates.
«Any growth is expected to be the result of increased productivity as the dairy herd is seen declining slightly from its current size,» Bailey said in the latest ASB Commodities report.
ASB economist Nathan Penny agreed with the analysis, saying efficient farmers would increase production, but some inefficient ones would fall out.
Importantly, the commission did not expect exports of whole milk powder to change from current levels. Whole milk powder is New Zealand’s biggest dairy export earner.
«Whole milk powder will remain ours and China’s domain. New Zealand will still be the world’s number one exporter and China the number one producer,» Penny said.
However he tipped whole milk powder production and prices to remain stagnant, and cheese to be the next area of growth. There was room for cheese to rise in price.
«When the Chinese start to eat more pizza, then cheese will be in more demand,» Penny predicted.
Meanwhile, Rabobank economist Hayley Moynihan says Australia’s free trade agreement with China is only a «stepping stone» in increasing its dairy trade.
Before it could do so, Australia needed to lift its milk supply.
«Australia has no recent track record of achieving milk supply growth. Its exportable surplus has fallen from a peak of more than 60 per cent to less than 40 per cent of total production,» she wrote in a report Magnetic Milk: the lure of dairy investment Down Under.
«At the end of the 2013-14 season, Australia had an exportable surplus of less than 3.5 billion litres of milk. It must grow its milk pool to fully capitalise on the trade opportunity across Asia,» Moynihan said.
Fonterra alone processes 16bn litres of New Zealand milk, of which 95 per cent is exported.
Source: Stuff