Agribusiness News March 2025 – Sector Focus: New Zealand Still Living Off the Animal’s Back

Farmers upbeat

New Zealand farmers are feeling upbeat. For despite a tough spring in the south of the country; dairy, beef and sheep prices are nicely up. Good news for farmers and the Kiwi economy given that food, fibre and drink exports accounts for over 80% of the country’s goods exports. Dairying is the star sector well ahead of meat, with timber, horticulture and wine also contributing.

Yet Kiwi farmers feel underappreciated by their urban mates, and trading may soon become more difficult given the new Trump administration’s potential impact on global trade.

Dairying the main sector

Fonterra, the farmer owned co-operative, that accounts for the majority of New Zealand dairy processing, forecasts this season’s payout above NZ$10/kg milk solids (MS) beating an average breakeven price of NZ$8.02 calculated by DairyNZ the industry levy body. Last season, the average producer did not breakeven with a payout of just NZ$8.11.

The Kiwi dairy model is still built around early spring calving to maximise production off pasture but has evolved in recent years due to economic (especially land, building and labour costs) and environmental pressures. While per hectare production has remained relatively steady, per head performance has been lifted through more supplementary feeding. Especially so in Southland where per cow production this season is forecast at 446kgMS/cow compared to a national average of 406kg (c.4.500 litres at 9% MS).

Sheep farming in long term decline

The prospects for Kiwi drystock farmers have also improved in the past couple of months with lambs now selling for NZ$8/kgDWT (about £4) and dairy bulls destined for the US burger market making around NZ$7.40/kgDWT, a third up on last year. After two loss making years, drystock farmers are hopeful of breaking even this season.

Nevertheless, better prices are unlikely to reverse the long-term decline in sheep production which is the cornerstone of Kiwi drystock farming. Simple economics has driven the conversion of vast swathes of the best livestock (and mixed cropping) country into dairying. While a generous emissions trading scheme has resulted in outside investors planting 270,000ha of poorer drystock country in trees since 2017.

Still, sheep farming has responded to market pressures. Better productivity means that since 1990 lambing percentage has lifted from 100% to near 140%, lamb carcase weights from 15 to 18-19kg DWT while at the same time labour productivity doubling so that 2,500 ewes can be run by one labour unit. Meat quality has also improved while (low) emissions per kilo of lamb are world leading.

Some substitution of (beef) cattle for sheep is also evident especially in the north island. Cattle are less labour demanding, while also giving farmers better scope to manage the growing threat from wormer resistance.

Growth opportunities limited

NZ dairy and red meat production remains very competitive internationally. Their farmers are rightly proud of the fact that they don’t depend on subsidies to make ends meet. Their knowledge sharing and transfer mechanisms remain first class helped by levy organisations that remain focused on production agriculture with due regard to minimising environmental harms.

But there appears limited hope of the industry growing export earnings. Unlike Brazil, there is no untapped land to exploit, and planning controls have all but ended converting drystock land to dairying.

A step change in productivity is also unlikely. The decline in production research and, until recently, reluctance to explore use of new gene technologies to, for instance, lift pasture productivity, puts a firm ceiling on the growth ambitions of New Zealand’s pasture based production industries.

Farming’s environmental impact is an issue: nearly half of the country’s greenhouse gas emissions come from agriculture, with water usage and quality also a concern where dairying dominates land use. There is a notable friction between town and country on the issue, with urban Kiwis seemingly unaware of the nation’s financial dependence on farming.

What of adding value to that which is produced? Niche dairy processor Tatua paid NZ$2.67/kgMS more than Fonterra last season thanks to higher valued products. Yet Fonterra has recently taken the decision to exit production of consumer brands. As for meat processing, operating efficiency is the priority. A loss of critical mass has placed Alliance, the one remaining wholly farmer owned processor, in a very difficult position.

The long-term global market prospects for dairy and meat are a welcome positive. But Kiwi agriculture is very dependent on Chinese demand, which could be an issue given the political forces reshaping world trade. Rebalancing New Zealand’s exports toward its traditional markets, has obvious implications for us.

Kev Bevan,  07368 825877