The global dairy sector looks set to be characterised by a future of solid market growth, but that growth will be unevenly spread, generating important new dynamics, a new industry report from Rabobank shows.
Growth would be dominated by developing markets, many of which would require outside assistance to supply enough product to meet rising appetites for dairy, Rabobank senior dairy analyst Michael Harvey said.
That would sustain an era of trade growth and provide a "substantial opportunity" for many farmers, traders and processors in export regions.
A lot of the global growth would come from China and New Zealand was well-placed to capitalise on that growth, given its existing trade linkages to the market which were supported by a trade agreement, Mr Harvey said.
With most of the growth in consumption volumes expected in regions that were already short of milk, such as China and Southeast Asia, a significant share of supply in the coming years would need to come from export regions.
The report showed the cost of producing milk in those exporting regions remained much higher than it was before the 2007 commodity price boom.
"Importantly, we also find evidence that the gap between low-cost and mid-table cost milk producers is narrowing, providing a more level playing field for exporters in a range of regions, and increasing the importance of export co-operatives in ensuring that their farmers are best placed to benefit from opportunities abroad," he said.
The report expected production costs to remain elevated for the medium term, supporting a high trading range for dairy commodity prices.
The bank's analysis indicated the vast increase in money flowing through the dairy supply chain in recent years had been either eaten up by farmers' input costs or capitalised into the value of farmland.
"On-farm profitability has improved somewhat, but not enough in most cases to improve the average return on assets, despite the increased difficulty of managing what has become a more volatile business."
