New Zealand’s dairy industryHon. John Luxton

Chairman

DairyNZ

• DairyNZ tvc

IntroducingNZ dairy farming

New Zealand is 1/10th the size of Argentina

Source: IBGE, SAGyPA Indicator Series, ODEPA, OPYPA, LIC, FAONotes: 1) NZ base year is 2000/01 season.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

75

100

125

150

175

Ar-gentina

Brazil

Chile

Uruguay

New Zea-land

Ind

ex (

2000 =

100)

Mercosul & NZ milk production

2000200020002000200020002000200020002000200020002001200120012001200120012001200120012001200120012002200220022002200220022002200220022002200220022003200320032003200320032003200320032003200320032004200420042004200420042004200420042004200420042005200520052005200520052005200520052005200520052006200620062006200620062006200620062006200620062007200720072007200720072007200720072007200720072008200820082008200820082008200820082008200820082009200920092009200920092009200920092009200920092010201020102010201020102010201020102010201020102011201120112011201120112011201120112011201120110.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

New Zea-land

Chile X Region

Uruguay

Brazil (MG)

USA

Mil

k P

rice

(U

S$/

kg f

at &

pro

t.,

adju

sted

fo

r in

flat

ion

, av

erag

e o

f la

st 1

2 m

on

ths)

Brazil Dairy Industry Background

Source: LIC,USDA, ODEPA, OPYPA, ESALQ

International milk prices

• 1.46 million ha used

• >85% grazed pasture

• 16.5 billion litres

• 8th largest producer

• Only 2.3% of world production

Dairying in New Zealand

Dairy Industry comprises ~25% of NZ’s export receipts

Milk price = international price… no tariffs and support

NZ dairying statistics

Dairy herds 11,691

No of cows milked 4.4m

Volume of milk produced 16.5 billion litres

Average herd size (cows) 376

Average stocking rate (cows/ha)

2.8

Average milksolids per cow (kg)

318

Milksolids per herd (kg) 123,000

How we compareNew Zealand Argentina

Milk production 18.5 m tonnes 9.5 m tonnes

Milk price 2% above world market -11% below world market

Milk consumption (ME per capita & per year)

>350 kg 187 kg

Milk processing into tradeable products

>90% 58%

Export >90% of production ~22% of production

Import ~3% of local consumption

~1% of local consumption

IFCN 2010 Dairy Report

NZ dairy farms vs Brazilian (Goiás) farms

Performance Indices New Zealand

GO - 2009 (average)

GO - 2009 (>1,000 l/day)

Age at First Calving (months) 24 34 29

Cows in Lactation (% of total) 73% 59% 66%

Machine milking (% of herds) 100% 24.2% 94.7%

Production (litres/ha/year) 12.960 1.981 3,579

Production (litres/man-day) 2.730 124 411

Production (litres/cow/year) 4,550 1,993 3,459

Use of artificial insemination 75% 12% 68%

Cost of Labour (R$/man-day) R$125 R$14 R$26

0

10

20

30

40

50

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Cow

s ca

lved

, %

Calving is seasonal

50

100

75

25

Pa

stu

re (

kg

DM

/ha

per

d)

Demand

Supplement required

Conservation required

Spring

Feed supply

The farming structure is evolving towards bigger farms and fewer farmers

19

74

/75

19

76

/77

19

78

/79

19

80

/81

19

82

/83

19

84

/85

19

86

/87

19

88

/89

19

90

/91

19

92

/93

19

94

/95

19

96

/97

19

98

/99

20

00

/01

20

02

/03

20

04

/05

20

06

/07

20

08

/09

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Herds Cows milked

Nu

mb

er

of

he

rds

Co

ws

milk

ed

Source: LIC Dairy Statistics, DairyNZ Economics Group

Production by herd size 2009-10

0-99

100-

199

200-

299

300-

399

400-

499

500-

599

600-

699

700-

799

800-

899

900-

999

1000

-109

9

1100

-119

9

1200

+

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

Herd size (cows)

Kilo

gram

s Milk

solid

s (m

illio

ns)

Source: DairyNZ Economics Group

6%

28%

7%

9%

11%

4%

18%

17%

Production trends

  1990 2000 2010

North Island 93% 77% 61%

South Island 7% 23% 39%

Milksolids production

NZ Export Markets

North Asia South-East Asia

Africa and Middle-

East

South and Central America

North America

Europe Pacific -

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

3,500,000,000

4,000,000,000

2000-01 ($m)2010-11p ($m)

$ N

Z FO

B (n

omin

al)

Source: Statistics New Zealand, DairyNZ Economics Group

Major processing companies

• Fonterra Cooperative Group:– 90 percent of milk supply and exports– 40 percent of the domestic consumer market

• 2 other co-operatives: – Tatua– Westland

• 5 other processing companies:– Open Country Dairies– Synlait– New Zealand Dairies– Goodman Fielder

• Farmers own 95%+ of processing capacity

Regulatory framework

DIRA• Open entry and exit• Contracting rules• 20% rule• Raw milk regulations

Fonterra milk price model

• Calculates revenue if all milk was processed into basic commodities & sold overseas

• Deducts shipping, processing & freight costs• Balance paid to farmers as milk price• Value add – eg selling premium ingredients/

investment in consumer brands – treated as profit

• Farmers receive profit as dividends on their Fonterra shares, plus price paid for raw milk

Looking ahead

1. Dairy making large & growing contribution

2. Global supply/demand supports NZ growth

3. On-farm business success $83/ha/yr

4. Erosion of NZ’s low cost base poses threat

5. Imperatives for productivity improve remain

6. Public & consumers driving sustainability

7. Public perceptions about dairy are mixed

8. Skilled people increasingly important

9. Unified approach to innovation & adoption

Improving productivityQuestions?