A visiting Rabobank analyst sees a competitive future for an “unbroken” NZ dairy industry, and signals a sustained price recovery beginning mid 2016

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Competitive future for “unbroken” NZ dairy – visiting global expert New Zealand dairy is well placed to compete in the global market as prices begin to recover in the coming 12 months, a visiting global dairy specialist has told local producers.

Tim Hunt, New York-based global dairy strategist with international agribusiness banking specialist Rabobank, says while current market conditions are “extremely tough” for many local producers, the New Zealand dairy sector is “unbroken” and has the fundamentals in place to enjoy a strong, competitive future in the global dairy trade.

In New Zealand for a series of presentations to Rabobank clients and industry stakeholders, Mr Hunt said the current cyclical price downturn had been made worse by a number of additional shocks – including the dramatic reduction of Chinese buying, the Russian trade ban and the removal of EU quotas – leading to the recent dairy market price crash.

But the factors were in place to lead to a sustained price recovery, likely to begin in mid-2016.

“We are in the midst of a nasty downturn. But this is what it is – a very bad cycle, not a shift in the medium-term fundamentals,” he said. “In the medium-term – looking out from the second half of next year – we continue to expect trade growth and profitable pricing in the dairy sector.”

And once that occurs, the expectation is New Zealand trade will again expand, with the local dairy sector well positioned to compete on global export markets.

“New Zealand dairy farmers are well placed to continue to compete well in international export markets – they are cost competitive, the New Zealand supply chain is low cost and effective and New Zealand has leading market access,” Mr Hunt said.

Speaking to local producers, he said while the current downturn was extremely painful for the dairy sector – particularly in New Zealand where prices had been hit far harder than those in other major dairy export markets – the “medium-term story” for dairy remained a positive one.

“In the next five years, the world economy is still widely expected to grow,” he said. “And there is ample headroom for dairy consumption growth in emerging markets, which a period of lower prices will help to fuel,” he said.

In addition, Mr Hunt said, these emerging markets – including China and South-East Asian countries – were still high-cost producers of their own domestic dairy, making imports more competitive.

Mr Hunt said Rabobank’s forecast was for international dairy trade to expand at a compound annual growth rate of 3.3 per cent, over the medium-term (next five years).