Low milk prices will benefit the New Zealand dairy industry in the long term as it will limit the size of European expansion, according to one New Zealand dairy expert.
Lincoln University Agribusiness and Food Marketing Programme Director Nic Lees says that there is a cost war going on between New Zealand and Europe at the moment and noted that Irish ambition is to increase milk production by 50% by 2020.
"This is similar to what is happening in oil with expanding production due to shale gas. With oil, the low prices are benefiting the low cost producers such as Saudi Arabia can produce oils for $10-$20/barrel. Whereas shale gas oil costs $50 to $100/barrel."
He described New Zealand is the 'Saudi Arabia of milk' and it can be the lowest cost producer. But he warned that dairy farmers in New Zealand need to focus on grass-based production to weather the storm.
"Grass will always be the lowest cost source of feed and New Zealand has the most efficient grass- based dairy system in the world.
“Ireland can grow grass too but currently they utilise less than half what they grow. The large, housed dairy operations in Europe are also only profitable at high milk prices.
"We need to focus on what we are good at, which is grass. The halcyon days may be gone for a while though and we are unlikely to see high prices again soon.
"It is going to be a slow recovery of price and dairy farmers need to be able to be profitable at $5/kgMS or they won’t survive. The average milk price over the last 10 years was around $5.50/kg MS."