Over the past fifteen years the New Zealand dairy industry has grown steadily. Its contribution to agricultural gross revenue and agricultural exports has expanded and pastoral land has been converted to dairy farms, while dairy cow numbers, herd sizes and productivity have all increased.

Maintaining production growth is a challenge for the dairy industry for several reasons. These include environment concerns (for example, limitations on water for irrigation in Canterbury and concerns about nitrates), greater competition for land, and weaker international dairy prices. The dairy industry is working with other pastoral sectors, and local and central government on initiatives for sustainable freshwater management.

on-farm production
New Zealand’s seasonal milk production system relies predominantly on highly productive, rotationally grazed pasture and herds of high genetic merit. It is this system that enables farmers to produce milk substantially below average world costs and gives New Zealand its advantage over competitors worldwide. A warm climate and productive pastures enable herds to graze year-round and avoid the need for indoor housing and expensive grain feed supplements.

The New Zealand dairy industry had approximately 12 000 herds as at June 2005, with 4.1 million in-calf cows and heifers (49 per cent Holstein–Friesian and 28 per cent Friesian–Jersey cross), producing over 1.2 billion kilograms of milk solids. The ‘average’ New Zealand dairy farm in 2004-05 was 115 hectares in size, and milked 315 cows to produce 1.15 million litres of milk containing 98 800 kilograms of milk solids. In the past twenty years, the number of dairy farms has fallen, but average farm and herd sizes have increased, while productivity, both per hectare and per cow, has substantially improved. Continued gains in milk production per cow are expected from better farm management practices and genetic improvements.

The vast majority of New Zealand dairy herds (97 per cent) supply milk seasonally for manufacturing and export. Cows start milking from late July and are dried off in the following May. The start date varies from late July in Northland to late August in the South Island. The remaining 3 per cent of the herds supply milk year-round for the domestic liquid milk market. Farmers contracted to supply milk during the winter months are paid a premium price above their usual payments.

Dairy livestock numbers and milk solids production – New Zealand July–June years 1984 1989 1994 1999 2004 -85 -90 -95 -2000 -5 Cows and heifers in calf or milk a million 2.48 2.62 2.99 3.34 4.1 Total dairy cattle million 3.25 3.3 3.84 4.32 5.15 Milk solids produced million kg 606 600 761 998 1 213 Milk solids per cow kg 244 229 254 299 296 a Opening numbers, June a year earlier. Source: Statistics New Zealand.

marketing and trade
As a result of New Zealand’s relatively small population and small domestic market for dairy products, 95 per cent of manufactured dairy products are exported. New Zealand’s share of world dairy trade is significant. Approximately 5 per cent of world dairy production is traded (excluding trade within the European Union) and, of this 5 per cent, exports from New Zealand provide 33 per cent. In fact, exports from New Zealand, the European Union (34 per cent) and Australia (13 per cent) provide over 80 per cent of dairy products traded worldwide.

New Zealand is the world’s largest exporter of butter, skim milk powder and casein, and the second largest exporter of cheese and whole milk powder (excluding intra-EU trade). New Zealand has achieved this position without reliance on production or export subsidies, and without protecting its domestic market from overseas competition.

New Zealand’s overall share of world dairy product exports continues to increase as its dairy industry develops to suit the needs of diverse markets. Between 1989-90 and 2005-06 the largest growth in dairy exports occurred in whole milk powder and cheese. The top five countries importing New Zealand dairy products in 2005-06 were the United States (12.2 per cent), Japan (6.3 per cent) China (5.6 per cent) Mexico (5.3 per cent) and the Philippines (5.1 per cent).

Dairy product exports – New Zealand April–March years 1989-90 1994-95 1999-2000 2005-06 kt kt kt kt Butter and cream 170 230 308 315 Cheese 84 169 245 267 Whole milk powder 101 317 359 595 Skim and butter milk powder 169 193 216 262 Casein and proteins 54 85 110 139 Sources: Statistics New Zealand; Ministry of Agriculture and Forestry.

processing and industry structure
The New Zealand dairy sector, like its overseas counterparts, is dominated by cooperatives, reflecting the perishable nature of milk, the sector’s relative homogeneity and economies of scale in processing, market and distribution. New Zealand dairy farmers face additional exposure, compared with their overseas counterparts, from New Zealand’s remoteness from its key export markets and high shipping costs. Cooperatives help to protect small producers from downstream market power and allow for better coordination of production, distribution, processing and marketing.

There are currently three core companies operating in New Zealand — Fonterra Cooperative Group Ltd, Westland Cooperative Dairy Company and Tatua Cooperative Dairy Company. The milk produced by nearly all New Zealand dairy farmers is supplied to these cooperatives. Fonterra, owned by 11 680 farmers, collects 96 per cent of New Zealand’s milk production. Westland has around 370 suppliers and produces around 3 per cent of New Zealand’s milk supply, while Tatua’s 124 suppliers provide most of the remaining 1 per cent.

Fonterra is the largest of New Zealand’s cooperative manufacturing dairy company. As a leading multinational company, Fonterra is responsible for around 40 per cent of world crossborder dairy trade and a major player in the export of dairy ingredients such as milk powder and casein. Fonterra’s international brands include Fernleaf and Anchor, and specialty products such as ‘Anlene’ (a high calcium, nonfat milk) and ‘Anmum’ (a milk powder especially formulated for pregnant women). Fonterra has a wide range of international marketing subsidiaries, joint ventures and other arrangements, which include collaboration in the United States (with Dairy Farmers of America), in the North and Latin Americas (with Nestlé) and in the United Kingdom and Europe (with Arla Foods).

In addition to these bigger export oriented companies, there are around seventy smaller companies operating in product or regional market niches in New Zealand. The Dairy Industry Restructuring Act 2001 requires Fonterra to supply up to 400 million litres of regulated milk, at a default milk price, to other independent milk processors to ensure that small processors are not forced out of the market. In 2005, Open Country Cheese, a private company, began operation and is currently expanding its direct milk supply, while another private company, Synlait, is developing a milk powder plant with local contract suppliers in the Canterbury region.