NZ best placed to capitalise on dairy boom

NZ best placed to capitalise on dairy boom

Speaking at the South Island Dairy Event last week, Senior Rabobank dairy analyst, Tim Hunt said that New Zealand was in a prime position to capitalise on the recent explosion of global dairy prices.

Mr Hunt, a member of the bank’s well respected Food and Agribusiness Research (FAR) unit, predicted that demand for dairy products would remain strong - over the next three to four years - driven by a range of variables; including a boom in the global economy, with particular strength of economic growth taking place in developing countries, where consumption is income sensitive.

“A combination of supportive trends in developing world population growth, urbanisation, westernisation and government and corporation promotion have come together in recent years, with the result an acceleration of demand growth,” Mr Hunt said.

At the same time, Mr Hunt said that several structural trends had constrained supply growth in traditional export regions meaning that global supply has been unable to keep pace with the speed of demand growth.

“Several structural trends have constrained supply growth in traditional export regions, including the reduction in government support to the EU industry and rising costs of production in Oceania. For several years the gap between rising demand and slow supply growth was met by a drawing down in intervention stocks previously accumulated in the USA and EU, but these stocks are now empty,” he said.

Overlaid on top of these structural trends have been a series of temporary supply shocks that have sent a tight market into significant deficit, and “lit a fire under global prices,” according to Mr Hunt.

“Included in these supply shocks is the rapid development of biofuels - pushing feed grain prices to record levels - the Australian drought, flooding in Argentina and the introduction of export taxes or bans in several countries to help alleviate domestic dairy price pressures,” he said.

“The key question,” Mr Hunt said, “is how sustainable is this current boom?”

Mr Hunt cited the projected growth of the global economy over the medium term, strength of corporate and government promotion, the achievement of ‘breakthroughs’ in significant markets and the fact that the biofuel effect is unlikely to recede quickly, as the key foundations of the current supportive global environment.

Mr Hunt said that although the dairy market has experienced sharp falls in the past, downside risks do not loom large at present.

Demand outlook appears solid, exporters will have trouble keeping pace and new exporters will take time to get up and running, Mr Hunt told the audience, adding that

prices are expected to remain, on average, well above their historic levels over the next three to four years.

“The New Zealand dairy sector is in a prime position to capitalise on these favourable global market conditions. It is the only significant exporter capable and willing to expand supply in the short term, making it best placed to capitalise on the current boom,” Mr Hunt said.

Rabobank New Zealand is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 100 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and is ranked one of the world’s safest banks by Global Finance magazine. Rabobank operates in 42 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches. Rabobank New Zealand is one of the leading rural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 29 branches throughout New Zealand.

ENDS

© Scoop Media