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Positives in low prices for ‘Saudi Arabia of milk’

2055756There are positives for New Zealand in low the current low milk prices. These low milk prices will benefit the New Zealand dairy industry in the long term as it will limit the size of European expansion.

There is a cost war is going on between New Zealand and Europe at the moment. Quotas have come off production in Europe so they are expanding milk production.

EU skim milk
Growth in exports of European skim milk powder

This is similar to what is happening in oil with expanding production due to shale gas. With oil, the low prices are benefiting the low cost producers such as Saudi Arabia can produce oils for $10-$20/barrel. Whereas shale gas oil costs $50 to $100/barrel.

Ireland, for example, is planning to increase milk production by 50 per cent.

New Zealand is the Saudi Arabia of milk and we can be the lowest cost producer, but dairy farmers need to focus on grass based production to weather the storm. Grass will always be the lowest cost source of feed and New Zealand has the most efficient grass- based dairy system in the world. “Ireland can grow grass too but currently they utilise less than half what they grow. The large housed dairy operations in Europe are also only profitable at high milk prices.

We need to focus on what we are good at, which is grass. The halcyon days may be gone for a while though and we are unlikely to see high prices again soon. It is going to be a slow recovery of price and dairy farmers need to be able to be profitable at $5/kgMS or they won’t survive. The average milk price over the last 10 years was around $5.50/kg MS.

Trend in global dairy prices
Trend in global dairy prices

It is likely that this will be similar over the next decade as well. What we are seeing though is greater volatility. This is going to continue so farmers need to have systems that are still profitable when the price is low. The most resilient system is the low input grass based system.

As an economy we also need to see the opportunities in other areas, he adds.For example there have been record high returns for beef in the first six months of this season, with the average per tonne value up 28 per cent. Beef is a great story with China needing to increase its beef imports by up to 20 per cent a year for the next five years to meet its surging demand for protein.

The majority of our dairy exports exports are commodities
The majority of our dairy exports exports are commodities

Lamb also has good prospects, and there are other opportunities, such as can be seen with the growing sheep dairy industry. We also need to continue to focus on growing the value of our dairy exports by moving away from exporting commodity whole milk powder.

New Zealand beef and lamb exports

How can we get more value from New Zealand beef and lamb exports?

Meeting consumer requirements means producing the right quality of product when the market requires
Meeting consumer requirements means producing the right quality of product when the market requires

The New Zealand Government’s has an ambitious goal of lifting total exports to 40 percent of GDP and doubling the value of primary exports by 2025. They have stated that this will involve developing stronger relationships with New Zealand exporters and supporting them to add and capture value from existing markets through supply chain integration, brand promotion and brand protection. New Zealand red meat exports play an important role in this as they represent 11% of total merchandise exports.

There is limited scope for increasing the volume of red meat production in New Zealand due to

Meeting consumer demand is difficult in New Zealand’s pasture based system
Meeting consumer demand is difficult in New Zealand’s pasture based system

land and environmental constraints. This means adding value to these exports is the only alternative. A significant proportion New Zealand’s red meat is still exported in commodity form and fails to achieve a premium for the attributes of its New Zealand origin. Changing this however will require a co-ordinated effort from government, exporters and producers.

Market access and promotion of the NZ Inc brand story can create opportunities for New Zealand exporters, however, capitalising on these initiatives requires companies to develop capabilities and strategies to market and deliver these products to demanding international consumers. These consumers are demanding greater variety and quality in the food they eat. They require a consistent year-round supply of high quality, safe food. They also want food that aligns with their own personal values, which includes credence attributes such as environmental sustainability, animal welfare and fair trade, as well as local and organic production.

Consumers want food that aligns with their own personal values, which includes animal welfare and environmental sustainability
Consumers want food that aligns with their own personal values, which includes animal welfare and environmental sustainability

To deliver this, it is necessary to have farmer suppliers who can produce the right quality of product when the market requires and who are committed to long-term supply relationships. Without this type of integrated value chain New Zealand will fail to break out of its reliance on agricultural commodities. This research has focused on several New Zealand exporters and their suppliers who have developed relationships with high-end retail customers and have a strategy in place to add value to their products.

Consistently meeting consumer demands is difficult within the constraints of New Zealand’s pasture-based agricultural production systems, as production volume and product specifications are highly dependent on climate.

Read Full research publication

Lees, N. J. (2015). The potential for red meat value chains. Primary Industry Management 19(1), 25-28.

Lincoln University is to receive NZ$107.5 million for agricultural and environmental science facilities

p10264enzLincoln University is to receive NZ$107.5m for the redevelopment of its research facilities as part of the larger development of the Lincoln Hub. The Lincoln Hub is a partnership among Lincoln University, DairyNZ, and Crown Research Institutes. This will represent the highest concentration of agricultural and environmental scientists in the Southern Hemisphere. The Hub underpins New Zealand’s agribusiness sector by being an incubator for research and innovation and creating more value for our agrifood exports.

“Every 1 per cent increase in primary sector productivity generates an additional $4 billion in exports for New Zealand. The agricultural sector is a powerhouse of the New Zealand economy, and the Lincoln Hub will bring together some of the best minds working in the sector today to help lift innovation productivity in the sector,” Mr Joyce says.

“As New Zealand’s specialist land-based university, Lincoln University is a major player in tertiary education and research in the agricultural sector in its own right. Modern, safe, fit-for-purpose science facilities will be integral to its future success and to the success of the Lincoln Hub.”

Cows-in-the-FieldThis is great news for Lincoln and the agrifood sector which makes up nearly 20% of New Zealand’s GDP and over 60% of exports. Student numbers in the agricultural management, agribusiness and food marketing courses at Lincoln have been growing significantly even while numbers in generic commerce courses have been in decline. This supports Lincoln in its move to refocus on the specialist land based degrees such as the B.Com(Ag) the new Bachelor of agribusiness and food marketing and the B.Ag.Sc. What is needed now is investment in the specialist academic staff in the farm management and agribusiness areas that will can support the education of the farm managers, agribusiness managers and agrifood marketing specialists who will be the future of our land based sector.

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Farm Efficiency or Customer Value – What is New Zealand Agriculture’s Competitive Advantage

nz boatFor most of the last century New Zealand has led the world in efficient production of agricultural products. By the 1950s New Zealand had one of the highest standards of living in the world. This comfortable existence was shaken by the rise of agricultural protectionism and support mechanisms in the 1970s. New Zealand was shut out from traditional markets and needed to compete with subsidised exports that drove down international commodity prices. This began a long decline in New Zealand agriculture, highlighted by Prime Minister, David Lange’s, famous statement that “Agriculture in New Zealand is a sunset industry and manufacturing and tourism will take over.” Cows-in-the-FieldFortunately for New Zealand, the demand for our agricultural products is increasing. The rapid urbanisation and economic growth in Asia has seen unprecedented growth in a middle class that is driving demand for New Zealand’s meat and dairy products

While this is good news, it also presents a significant challenge. How can New Zealand turn this period of high agricultural commodity prices into sustainable long-term prosperity?  New Zealand, potentially, risks becoming dependent on China in the same way it was dependent on Great Britain for most of the 20th century. Once again, New Zealand may become vulnerable to volatile international commodity prices and changes in foreign countries’ agricultural policies.

Read Full Article

Breakfast in Belgium

The renovated breakfast room of the B&B Le Verger (the orchard)
The breakfast room of the B&B Le verger (the orchard)

Staying in a 100 year old Bed and Breakfast in Brussels (Le Verger) with Sarah, Olivier and their 3 children gives me the opportunity for some informal research interviews. Interestingly Sarah runs a local food co-op, collecting food from a local farm and delivering it to other families in Brussels.

As I sit down to have my Belgian breakfast of croissants, coffee, cheese, prosciutto and yoghurt, my host Olivier asks me about what I am doing here. After explaining about the research project, he soon tells me that New Zealand has a problem because of the distance of transport.  New Zealand is so far away how can sending our food to Europe be sustainable? I explain how the sea freight only makes up a small proportion of the carbon footprint and that the production and road transport make up the biggest share. He seems to understand and mentions the latest National Geographic article on food that comments that “local food” is not that sustainable because it can not be scaled to feed the world.

I ask him what New Zealand food products he is aware of in Belgium. He had to think hard for a while then says of course there is wine in the supermarket, white wine and also can be found in the wine specialty stores. He knows about Zespri kiwi’s because it happens the business he works for uses the same marketing and communications company as Zespri. Because of this he knew quite a lot about Zespri even about the problems with PSA disease.

Apart form that he can’t think of much though he then remembers lamb sold at Easter “Le Gigot d’Agneau Pascal”. All the supermarkets had it

Carrefour Supermarket add offering NZ lamb for NZ$8.40/kg
Carrefour Supermarket add offering NZ lamb for NZ$8.40/kg

for sale and it was so cheap. Everyone new it was New Zealand lamb though it wast specifically advertised as such. The Easter lamb is traditional so the supermarkets sell it below cost (loss leader) as a way to attract customer so they can make their money on the wine, vegetables and other food they buy. They had contacted a specialist butcher to see if they could get some lamb but he said he couldn’t compete because of the low price the supermarkets were offering.

New Zealand "Zespri" and Italian "KingKiwi" from the fruit bowl.
New Zealand “Zespri” and Italian “KingKiwi” from the fruit bowl.

Interesting start to the research, it seems NZ wine had the strongest brand presence followed by Zespri “Kiwi” fruit. This is further confirmed as I reach for the fruit bowl and selected Zespri branded “kiwi” to finish my breakfast. Notice the difference in quality between the New Zealand Zespri and the Italian KingKiwi fruit


Fonterra creates sustainable dairy development centre with China

Fonterra today announced the launch of the China-New Zealand Dairy Exchange Centre in Beijing.

Fonterra already has 5 farms in China and aims to be producing one billion litres every year in China by 2018. When complete these farms will milk about 15,000 cows and produce 150 million litres of top quality fresh milk every year. They will also employ 500 local staff.

02.03.12_-_China_farmsThe Centre is a joint initiative between Fonterra and China’s National Dairy Industry and Technology System to support the sustainable development of the dairy industry in both countries. “It is a key priority for Fonterra to contribute to the development of the Chinese dairy industry and we believe there is a lot to be gained by both New Zealand and China through the sharing of knowledge, research and dairy expertise,” said Kelvin Wickham, President of Fonterra Greater China and India. “Both parties have world-class dairy research and know-how so we are very pleased to be playing a key role in bringing this initiative to life,” he said.

The Centre will develop and oversee programmes in policy development in the China and New Zealand dairy sectors, academic exchanges, industry promotion, dairy technology research and personnel training.

Its first three initiatives will be:

1. Hosting an annual China-NZ Dairy Forum to bring researchers together to share research and best practice in key dairy issues.

2. Overseeing joint research by China and New Zealand dairy experts on dairy industry policy and technologies.

3. Implementing a “Golden Key” training programme to provide dairy personnel with training and technology solutions to assist China’s local dairy industry development.

Wang Yuchan, a scientist with the China Ministry of Agriculture’s National Dairy Industry and Technology System said today, “We’re very pleased to have this in-depth cooperation with Fonterra and the New Zealand dairy industry. We hope to leverage the China New Zealand Dairy Exchange Centre as a platform to learn more about New Zealand’s technology and expertise, jointly conduct research and development, and undertake technology exchanges and training on dairy sector issues. This will help us to promote the sustainable development of dairy in both New Zealand and China.”


Will increasing EU production affect New Zealand dairy export prices?

Cows-in-the-Field2015 is the last year that the EU will have a quota on milk production (expires 1 April 2015). This means after that there will be no restrictions on increasing milk production. Currently if farmers produce over their milk quota they pay a penalty of 28 EUR/100 kg. In countries like the Netherlands the current high milk price means farmers are producing above quota and willingly paying this penalty.

EC’s quarterly agricultural outlook shows that the number of EU dairy cows increased significantly in 2013. The 2013 increase was greatest in the Netherlands (+3.6%), Spain (+3.6%), Ireland (+2.1%), Germany (+1.8%) and France (+1.5%).

Should New Zealand dairy farmers  fear surging European Union milk production where there are 22.8 million dairy cows compared to less than 5 million in New Zealand.

Source: Ernst and Young 19 September 2013: Analysis on future developments in the milk sector Prepared for the European Commission - DG Agriculture  and Rural Development
Source: Ernst and Young 19 September 2013: Analysis on future developments in the milk sector Prepared for the European Commission – DG Agriculture
and Rural Development


The reality is that most of the European Union milk production is consumed internally. Even so the European Union (EU) remains the one of the world’s major dairy exporters accounting for about 32 per cent of all export sales on a milk equivalent basis. Most of this comes from three countries, Germany, the Netherlands and France (see Figure 20).

The good news for New Zealand is that most of this is exported as Cheese. The European dairy industry is set up mainly to produce fresh milk and cheese, producing about 40% of total world cheese production. This means most of the increase in European production will go into cheese exports

Although  only producing 3 per cent of world milk output, New Zealand is the second largest supplier of manufactured products to the world market with a 32 per cent share. However the largest share of this goes as whole milk powder. Cheese exports represent only about 15 % of New Zealand exports.

Source: Ernst and Young 19 September 2013: Analysis on future developments in the milk sector Prepared for the European Commission - DG Agriculture and Rural Development
Source: Ernst and Young 19 September 2013: Analysis on future developments in the milk sector Prepared for the European Commission – DG Agriculture
and Rural Development

So there may be a significant increase in production from the European Union, stimulated by high prices and the removal of quota, however this is most likely to affect cheese and skim milk powder exports. Figure 13 shows the changes in European dairy product exports and it can be seen there is significant growth in skim milk powder and cheese.

The removal of quotas in 2015 is likely to result in a decrease in small farms and an increase in larger operations in countries like Germany and the Netherlands. The long term effect is that the European Union is likely to become a stronger competitor on the international market as the industry in these countries become more competitive and able to respond to market signals.

In the long term New Zealand must remember that it is a small player in the overall dairy production market. Small changes in production and exports in the European Union or the US can have big impacts on the small percentage  of dairy products that are traded (About 7 per cent of global milk production is traded in international markets each year). Small changes in demand for imports from countries like China can also impact significantly on dairy prices. The one thing that is for sure is that record dairy prices won’t last for ever. High prices will stimulate an increase in production from the most efficient producers until prices reach a new equilibrium. In the long term New Zealand will still have to be innovative in production and marketing to maintain its competitive advantage in the brave new word post EU quotas.

The full Ernst and Young Report : Analysis on future developments in the milk sector Prepared for the European Commission – DG Agriculture and Rural Development. Is available on the resources section of this site click here

How do you define sustainable beef?


McDonald’s aims to begin purchasing verified sustainable beef in 2016

The big question is, how do you define sustainable?

The answer to this is being sought by the Global Roundtable for Sustainable Beef (GRSB) a group made up of conservation groups, farmer associations, retailers and companies providing products and services to the global beef industry

GRSB prescribes to the “triple bottom line” approach in defining sustainability, meaning a a sustainable beef system must be environmentally sound, economically viable and socially responsible.  This week they have published a draft document outlining “Principles and Criteria for Global Sustainable Beef” The draft document is open for public comment through May 16, 2014.

GRSB Principles and Criteria for Global Sustainable Beef

The key principles outlined are:

  • Natural resources – Global sustainable beef stakeholders produce beef in a manner that identifies and manages natural resources responsibly and maintains or enhances the health of ecosystems.
  • People and community – Global sustainable beef stakeholders protect and respect human rights, and recognise the critical roles that all participants within the beef value chain play in their community regarding culture, heritage, employment, land rights and health.
  • Animal health and welfare – Global sustainable beef stakeholders respect and manage animals to ensure their health and welfare.
  • Food – Global sustainable beef stakeholders ensure the safety and quality of beef products and utilize information-sharing systems that promote beef sustainability.
  • Efficiency and innovation – Global sustainable beef stakeholders encourage innovation, optimise production, reduce waste and add to economic viability.

These principles are being left somewhat general with the idea that they will be made more specific at a local level.