New Zealand dairy farmers are set for a bumper financial year despite the nation’s milk pool shrinking, top economists say.
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Source: Financial Times

NEW Zealand’s dairy industry is on track for a strong new financial year even with the shrinking Kiwi milk pool.

That’s the view of New Zealand’s Reserve Bank, which claimed NZ dairy sector’s declining indebtedness in recent years had reduced its risk to the overall Kiwi economy.

In the latest report to NZ Reserve Bank governor Adrian Orr, Wellington’s economists claim Fonterra NZ’s record farmgate prices will assist with lower production output.

“Fonterra’s latest forecast farmgate milk price for the 2021/22 season of $9.60 per kg of milk

solids (kgMS) would represent a record payout level,” the report said.

“Although this may be slightly offset in terms of farm incomes by lower production volumes, partly due to dryer weather conditions.

“The current strength in dairy prices may continue into next season, with limited prospects of global milk supply growth in the near term.”

On average, New Zealand’s dairy farmers have repaid around NZ$3 of bank debt per kilogram of milk solids in recent years.

“Total dairy sector debt has declined by around 12 per cent since its peak level in 2018, reducing debt servicing costs, and meaning farmers will be better positioned to deal with any potential future downturn in dairy prices,” the NZ central bank said.

United Dairyfarmers of Victoria outgoing president Paul Mumford noted the similar trends across the Tasman.

He said reduced production in New Zealand correlated with a similar decline in Australia, on the back of labour shortages and increased fertiliser costs in both countries.

“It’s not as simple for retailers to just import cheaper produce from overseas, particularly New Zealand,” Mr Mumford said.

“NZ farmers have been experiencing similar challenges to Victorian farmers. Input costs are a broad issue across agriculture, and that should mean higher prices at the retail level.”

A new report asks whether supposedly green livestock practices have proven benefits.

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