Dairy exports: a lasting bonanza: Murray Gough foresees a continuing high level of international demand for New Zealand dairy produce.

• Author: Gough, Murray

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Dairy export prices are at record highs, and that is fundamentally good for the New Zealand economy--but are they soundly based or just a short-term spike? To understand what is going on it is necessary to remember that for many decades New Zealand's dairy exports have faced largely closed markets--in Europe, the United States, Japan, and elsewhere. Import demand even now accounts for just 7 per cent of the world's dairy consumption.

Prices have remained low in the world's open markets because Europe (mostly) and America (to a smaller degree) have continued to dump their surpluses. Dumped surpluses still account for a third of all international dairy trade, but over recent years the situation has begun to improve:

* The GATT Uruguay round has reduced the volume of subsidised exports.

* Oil wealth in the Middle East, North Africa, and elsewhere has substantially strengthened import demand.

* Economic growth in open developing markets, particularly in Asia, is bringing sustained growth in milk consumption.

Current world milk-solids production (milkfat plus protein) is summarised in Chart 1. The length of the black bars indicates production volume. Europe is the largest producer, followed by India and the United States. The tiny volume of world imports is indicated in grey. Per capita consumption is shown at the end of each bar. Exports are shown to the left of the vertical line. Only New Zealand, Australia and parts of Latin America are economically viable exporters. (In Latin America, exports by countries such as Argentina and Uruguay are matched by imports by Mexico and others.)

Over the next 20 years world consumption of milk is expected to grow at a faster rate than before. Japan and other Asian countries have already shown that, as incomes increase, people in Asia will follow Western patterns and consume more meat and milk at the expense of rice. Importantly, this is now happening in China, where urban milk-solids consumption has trebled in ten years to around 3 kilograms per capita, not all that far short of Japan's current 5-kilograms level.

Rapid increase

Japan increased in just a few decades after the war to its present level, and has then remained there for some time. This is much lower than Europe at 23 kilograms and the United States at 18 kilograms--but milk prices in Japan are much higher than in Europe and the United States, and Japanese consumption would almost certainly increase further if prices were to fall. Chinese consumption continues to grow at 15 per cent or more a year.

An estimate of how much additional milk the world might need by 2025 is shown in Chart 2. The black bars indicate...