New Zealand's Fluid Milk Production Forecasted to Decline in 2024

This anticipated decline is primarily due to a shrinking national herd and the short-term impacts of the El Niño weather pattern, which brought varying weather conditions, including increased rainfall and periods of drought. Additionally, the dairy sector is grappling with declining revenues and high debt servicing costs, placing significant pressure on many dairy farmers.

The macroeconomic environment in New Zealand poses considerable challenges for dairy producers. Elevated interest rates set by the Reserve Bank of New Zealand (RBNZ) have escalated the cost of debt servicing, which now accounts for nearly 19% of the breakeven milk price per kilogram of milk solids (KgMS). This financial burden is exacerbated by rising input costs, particularly for feed and fertilizer, which are essential for maintaining high milk yields. Despite these challenges, dairy processors in New Zealand are investing in upgrading their processing capabilities, transitioning from milk powder production to more value-added products such as butter, cheese, and cream.

Trade remains a critical component of New Zealand's dairy industry, with 95% of milk production being exported in various forms. The country's trade agreements, especially with China, ensure a steady demand for its dairy products. As of January, the final duties on imports of New Zealand dairy products under the New Zealand-China Free Trade Agreement were reduced to zero. By May, global export volumes of New Zealand dairy products had increased by 5% compared to the same period last year, despite lower shipments of cheese and butter. This growth underscores the sector's efforts to diversify its production across multiple value-added revenue streams.

Domestically, consumption of dairy products is gradually increasing, driven by population growth and a rising awareness of health benefits. Although domestic consumption remains relatively small, this steady growth contributes positively to the overall demand for dairy products within New Zealand.

In summary, New Zealand's dairy industry is navigating a complex landscape marked by environmental challenges, financial pressures, and evolving market dynamics. However, continued investment in processing capabilities and strategic trade agreements are helping to sustain and potentially grow the industry's global footprint.