Dairy markets have hit a sweet spot but big challenges remain

 Global dairy markets continue to grow despite negative sentiment in some quarters. The Climate Change Commission expects less cows to be balanced by more milk per cow. Man-made ‘udder factories’ are yet to emerge.

The combined effect of the three latest global dairy auctions has been that US-dollar prices for dairy have risen eleven percent since Christmas. A farmgate payment above $NZ7 for each kg of milksolids (MS) of fat plus protein for the dairy year ending in May 2021 now looks close to ‘baked in’.

This means that for a second year, farmgate prices will exceed $7. This will be the first time that prices have stayed above $7 per kgMS for two consecutive years.

It will also mean that five years have passed since the two bad years of 2015 and 2016. The bad years were largely driven by EU internal quota removals and a consequent surge in EU production.

During the latest five-year period, New Zealand farmgate prices have been over $6 per kgMS every year. Compared to previous times, and in the absence of disruptors, pricing volatility has been much reduced.

Surely it is time for those who have been saying that dairy farming is an industry of the past, rather than the future, to think again. The messages from the market are that there is actually increasing global demand for dairy. There is also no big secret as to why this is occurring.

In the case of New Zealand, the biggest driver of what happens is demand from the citizens of China.  Currently, approximately 65 percent of product sold on the Global Dairy Trade auction platform goes to China.

For those who say this is terrible that we are so dependent on China, it is important to understand that the marketing destination decisions are not made by New Zealand. It is the Chinese companies who are buying the New Zealand products while sitting in their offices in China and placing their bids online.

Most of New Zealand’s dairy products are still sold as commodities that become ingredients in processed foods. There are good reasons why this situation exists given the seasonality of New Zealand dairy. Eighty percent of the product comes from Fonterra, and Fonterra has found the hard way where its skillset lies.

There are many in our community who think that synthetic milks will take over within the next ten to fifteen years. I doubt that greatly.

To start with, the plant milks are nothing like the animal milks. Plant milks do not build bonny children. Rice milk and oat milk are inherently low in protein. Soy milk can be high in protein, but many of us are cautious about the health issues of a soy-based milk.

As for lab-constructed milks that mimic animal milks, they have huge challenges to overcome.  There are good reasons why animal milks contain both casein and whey proteins.

Digging deeper, there are good reasons why animal milk contains all of alpha, beta and gamma caseins, and there are also good reasons why there is a multiplicity of whey proteins. There is also the multiplicity of fatty acids. Nature does not produce such complex products by chance.

Even when science   solves all of those problems with a manufacturing structure that mimics a real udder, there will still need to be an energy-capture mechanism, be that wind, solar or other mechanism. There will also need to be an energy transfer system, presumably electricity, that brings this energy to the ‘udder factory’.   It won’t come cheap.

Despite all of those positives, there are still plenty of challenges for dairy in New Zealand. The first big one is nitrogen leaching. The second is phosphorus runoff plus winter pugging and associated animal welfare. The third is greenhouse gasses.

I reckon we already have solutions to the first two within reach, although in saying that I acknowledge that I am outside the mainstream of industry thinking.

I am on record as saying that the future of dairying in New Zealand will include the use of ‘composting mootels’ for late autumn and through winter, where the cows spend much of each day in the mootel doing their pooing and peeing into the bedding.

It might sound strange to the traditional Kiwi way of thinking, but the reality is that composting technology is now available such that the cows can remain warm, clean and dry with the liquid evaporating away though the roof vents. There is no smell in a properly functioning open-sided composting mootel.

The cows can still go out to graze every day for a few hours as long as they then come back into the mootel for pissing, pooing and resting. However, in real wet weather, it is best that they are fed hay, silage or other materials within the mootel.

The concept is relatively new and we still have much to learn. But it definitely works as long as things are done correctly. Currently, I have a project funded by AGMARDT to bring together what we already know, and also what we now need to learn, as the concept spreads out across New Zealand.

From what I can see currently, the economics of the mootel system are good, but for some farmers the issue of finance might be constraining. We also have more work to do on bedding systems and making sure that sufficient sawdust, wood shavings and wood chips can be made available.

The other big issue is greenhouse gases, and that issue is surely not going to go away. The best we can hope for is that the debate is based on scientific principles and logic rather than assertions and emotions.

The good news is that the composting mootel concept is also likely to bring benefits in terms of both methane and nitrous oxide emissions. However, research is going to be needed to document what we currently think happens in the system.

The bad news is that there is still a lot of ignorance in urban New Zealand as to the extent to which the New Zealand economy is underpinned by export agriculture.

The recent report by the Climate Change Commission is going to ramp-up climate related action. The Government is clear in its resolve. I will have more to say about the Climate Change Commission report at another time. Here, I will restrict myself to some dairy specifics.

The Climate Change Commission expects that cow numbers will reduce by around 15 percent by 2030, but provides no specific policy recommendations to make this happen. Rather, the Commission sees this happening independent of climate-change policies. The Commission thinks it will be a consequence of freshwater regulations aimed at reducing nitrogen leaching and phosphorus runoff.

Although cow numbers are expected to drop, there is recognition that dairy is important to the economy. Accordingly, the Commission does not expect national dairy production to drop significantly. Rather, it will be less cows but more milk per cow.

The Commission thinks that increased production per cow can come from low input systems.  At best, this will be challenging. It will require high energy feeds.

The one certainty is that there will be ‘black swan’ events that change many things. As Dwight Eisenhower said a long time ago, ‘plans are nothing, but planning is everything’.  In the meantime, there is a pathway that leads into the maze.

About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
This entry was posted in Composting mootels, Dairy, greenhouse gases, Uncategorized. Bookmark the permalink.

6 Responses to Dairy markets have hit a sweet spot but big challenges remain

  1. Ian James says:

    Hi Keith, I assume you are aware of the progress the Israelis have made towards lab grown milk. https://www.remilk.com/ I suspect many other bio attempts will be made to remove the cow from the process. If achievable has a lot of logic behind it but likely some negatives too. Cheers. Ian James. Ps. http://dairynews7x7.com/israels-remilk-serves-up-dairy-products-made-without-cows-and-animals/

    • Keith Woodford says:

      Thanks Ian,
      I suspect the journey to commercialisation for Remilk will be much longer than implied from their website material. It seems they may be focusing on casein proteins rather than whole milk. The website material is somewhat confusing. It talks of ‘microbial fermentation’, but that can only be one part of the complex protein synthesis. And if the microbes are somehow going to synthesise the milk proteins then there still has to be an energy source to drive the process. The microbes cannot themselves create the energy; they can only transform it.
      Keith W

  2. David Porter says:

    Thanks Keith. Re synthetic milk (and meat for that matter) none of the companies that I have looked at will release either an energy or C budget for their products. You are absolutely right to pursue that angle as ruminants, for all of their methane problems, can utilise feed grown with sunlight on land not otherwise suitable for food production.

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  4. I don’t know whether I speak for “urban critics”, but my problem with primary industries is that we are still commodity producers and that overseas interests take a great percentage of the value added over and above the “natural capital” our farmers, fishers and others so expertly turn into raw commodity exports. The way we have increased output is through increasing quantities – more fish, more cows, more logs, more fruit, more honey. Which is all great, but there has to be an ecological limit, and surely more investment could go into capturing more of the value that is going to overseas interests by doing our own thing with our “natural capital” and badging it with our distinctive print.

    • Keith Woodford says:

      Peter,
      I have been one of those who have argued for more ‘value adding’. However, it is challenging when we are so far away from the consumer markets and consequently we don’t understand key nuances of those markets. When we have tried, we have often fallen flat on our faces, with Fonterra an outstanding example. However, the urban investment community has also been very slow to take on investment opportunities. For example, Synlait had to go overseas for the capital it needed in its early days. Similarly, both ANZCO and Silver Fern Farms had to go overseas to find the capital they needed. The a2 Milk Company is also mainly overseas capital and most of the share trading is done in Australia. Similarly, most of the capital in the wine industry comes from overseas. New Zealand investors prefer the property industry and perhaps that has been with good reason given the overarching institutional system.
      KeithW

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