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New Buyers to Keep Dairy Prices Bubbling

Posted on: Wednesday, 27 July 2005, 15:00 CDT

Demand from developing countries is likely to keep New Zealand dairy prices healthy, according to a recent industry report.

Rabobank's Global Focus Report said this demand, as well as lower milk production from traditional markets such as the EU, meant New Zealand was well placed.

"Export markets are moving closer to home as developing countries, particularly in Asia, drive growth in demand for global dairy," the report said. "With slower growth in supply from traditional exporters and low product stockpiles, world demand is expected to provide a positive outlook for prices in the medium term."

Rabobank dairy analyst Hayley Moynihan said dairy commodity prices went from strength to strength in 2004 as demand for dairy products rose on the back of a strong global economy. She said real gross domestic product was four per cent, well ahead of the 10-year average.

"The real acceleration has been driven by emerging markets and developing countries that have had remarkable growth of six per cent in 2004. The large economies of China, India and Russia were the most significant contributors," Ms Moynihan said.

She said New Zealand's key export markets for dairy products in 2004 were a reflection of the growth in demand of developing countries. The Philippines and China now stood alongside the EU and the US as the dominant export destinations by volume.

In particular, China emerged as a major "engine room" of global growth, and its overall imports rose 32 per cent in 2004.

"With New Zealand's significant presence in developing countries and export product mix, it remains well placed to capitalise on future income and population growth in these markets."

Also, major oil exporting nations which were significant consumers of dairy products had seen significant rises in oil revenue.

Ms Moynihan said market dynamics had changed significantly in recent years. A Common Agriculture Policy in the EU and quota reductions had reduced the region's milk production.

"These changes have been to the benefit of New Zealand, which increased its share of world dairy exports from 22 per cent in 1999 to 30 per cent in 2003."

The Rabobank report predicted that, in the medium term, global dairy prices would be higher than seen in the 1998-2003 period. But there was a limit to sustainable global prices as product substitution and the arrival of new exporters led to easing demand.

Source: Waikato Times

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