Don’t get too excited by dairy price spike

After years of serious decline in the dairy sector with a combination of drought and economic downturn affecting dairy product prices, farmers will be allowing themselves a bit of a smile following the release of the latest data. The news comes as New Zealand farmers begin to think about the spring and summer ahead.

However the duration of the drought and the fact that it has continued over winter, means this is unfortunately not a time to get too excited. Yes there has been a rather noticeable spike in prices since the start of August, but the outlook is still not flash. Consecutive winters of below normal rainfall mean that aquifer recharge will require more than just a couple of significant heavy rainfall events. The low levels are exacerbated in places like Canterbury where ground water allocation is at or near 100% of the known supply. Further water use will start to deny existing users their allocated quota. A reversion from El Nino to a La Nina phase in the weather means the likelihood of another dry summer with potential drought like conditions is high.

The drought is just one part of the environmental choke on the New Zealand dairy sector. Without significant changes to the natural environment and possible flow on effects to tourism and extra cost to New Zealand citizens, particularly those in urban areas whose water quality may be adversely affected, New Zealand dairy farming is at peak performance. Because of the contribution that recreational tourism – particularly water based – plays in the economy, a balancing act between maintaining good freshwater resources is needed.

Then there is the global economy. This has spluttered along and at times looked like starting to recover from the Global Financial Crisis. However combination of factors including slumped petrol prices, global instability and key economies slowing down have eroded any progress that has been made. In the case of slumped oil prices, partially caused by weak demand mean that significant capacity in countries like Saudi Arabia is not fully utilised.

Is it time for farming to reduce the emphasis on dairying? For too long New Zealand has been busily putting all of its economic eggs in one or two proverbial baskets. Yes, supply and demand means there will always be a case for dairy products, but what happens when the conditions for good dairy sector performance are simply not there?


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