Market forces affecting supply of NZ Dairy Products

DAIRY PRODUCTION IN

NZ

Market forces affecting supply of NZ Dairy Products

Our Learning road map

1. Dairy Products- what are they and who do we sell them to?

2. How significant is NZ in terms of world trade, who are our competition?

3. What has happened to supply over the last umpteen years?

4. What are the Market forces that have affected supply?

5. Which market forces have been more signifcant?

Dairy products what are they Question:

List down the top 5 dairy products produced in NZ.

See if you can rank them in order of volume produced.

Dairy products what are they

Taken from http://www.godairyeducation.co.nz

Dairy products what are they Top 5 NZ exports

WMP Butter SMP Cheese Casein

Any ideas on who is buying all that WMP, Butter and SMP?

Who do we sell them to? NZ dairy exports went to about 151 countries. Key markets being

China, the US, Japan and the EU. Developing countries are the destination for about 72% by export

value.

Revision – top four export destinations are?

ChinaJapan

EU

The NZ Advantage

New Zealand has many competitive advantages: Our climate is temperate and our soils are

fertile = a pasture based feed system.

Youtube – mega dairying in the US

We have a good international reputation.

Anchor Butter advert Because dairy farming is important to New

Zealand, money and resources are put into the industry.

NZ as a world player

New Zealand accounts for about one-third of cross-border trade in dairy products, but we only account for a little over 2% of total world milk production. By comparison the US accounts for about 12% of total world production.

So why does the US buy so much milk product from NZ?

NZ on the world stage

Supply trends

Over the past 10 yrs, NZs Milk prod has grown by 3.7% a year

2009/10 = poor climatic conditions wet spring and drought over summer ment a dip in supply

2005/6 herd size has increased, but herd numbers decreased. Overall numbers of cows hare steadily increased. 2005/6= 3.8 mill c.f 2009/10 = 4.4 mil

Our NCEA Question

Explain in detail how the selected market force has, in recent times, affected the supply of your primary product.

Easy Peasy!

Dairy – market Forces

Market forces that affect supply:

• seasonality

• price trends

• market manipulations

• political intervention

• exchange rate.

The question ;-)

Market forces I recommend to select: seasonality price trends market manipulations political intervention exchange rate.

What has happened to dairy supply over the last umpteen years?

New Zealand dairy production has risen 77 percent over the past 20 years - from three million dairy cattle in 1989 to six million dairy cattle in 2009.

How do you get 77% from a doubling of cow numbers?

Over the past 10 years NZs milk production has grown by an average of 3.7% a year.

99/00 = 11,500 million litres

09/10 = 16,500 million litres

First – Seasonality! In May 2011, production in New Zealand was 4

per cent ahead of a year earlier and output may reach a record after mild autumn weather boosted pasture growth.

New Zealand's milk output might surge 5.7 per cent in 2011-12, the Ministry of Agriculture and Forestry said on June 14 2011.

And then the snow – but the impact of the weather on milk production should be minimal, due to good body condition scores of most stock and adequate feed reserves.

Affects of pasture growth conditions on seasonal supply Poor or good pasture growth conditions have an

immediate effect on milk production, but also can have a delayed effect due to changes in cow condition score.

For example in May 2011 NZ (as a whole) had a mild autumn with above normal pasture growth. Consequently NZ milk production was 4% above the average autumn production. This was the immediate effect of seasonality. However over this same autumn, cow condition also improved. So in the following spring cow condition was higher and when NZ experinenced a cold snap (snow) in September 2011, milk production was maintained as farmers were able to ‘milk off the cows backs’.

Then – Price trends Price trends for NZ milk products have tended to

increase over the last 10 years http://www.interest.co.nz/charts/commodities/dai

ry-prices

Season Average Dairy Company total Dairy Company payoutpayout ($/kg milksolids) (inflation adjusted)a1985/86 2.29 4.371986/87 2.03 3.271987/88 2.34 3.531988/89 3.28 4.731989/90 3.59 4.821990/91 2.42 3.161991/92 3.34 4.321992/93 3.66 4.671993/94 3.32 4.191994/95 3.40 4.111995/96 3.99 4.731996/97 3.63 4.251997/98 3.42 3.931998/99 3.58 4.141999/00 3.78 4.282000/01 5.01 5.502001/02 5.35 5.722002/03 3.66 3.852003/04 4.25 4.372004/05 4.58 4.58

The payout to NZ dairy farmers took 18 years to go from $2.30/kg to $4.60

In the last 6 years it has almost doubled again moving from $4.60 to $8.10 (2010/11 season)

Price trends in 2011 Whole-milk powder reaching a record US$4958 in

March 2011. But has slumped 32 per cent since then as high

prices spurred milk companies in the US and New Zealand to boost output.

The drive for this increase in price is probably the increased demand from China.

Chinese demand for New Zealand milk products last year surged more than fivefold from 2008 to about 353 million kilograms, according to Fonterra.

Last Exchange rate

The NZ dollar

The three market forces you have used to answer Question Two (a), (b) and (c) will vary in their effect on the supply of your primary product (2). Rank the three market forces in order of the effect they have on the supply of your primary product (2): (Greatest effect) 1 2 (Least effect) 3 Justify this ranking by explaining, in detail, the relative effect of each market force on the supply of the product.Note: State units and values where appropriate.