Is dairy our biggest achievement or yesterday’s news? NZIER Insight 91

01 September 2020

New Zealand Institute of Economic Research (Inc)
Media Release, 1 September 2020
For immediate release

The dairy industry has led the way with its performance over the lockdown period and as the COVID-19 crisis has continued, NZIER find in an Insight released today. But will the dairy industry continue to be a major driver of the New Zealand economy over the next 10 years?

“The dairy industry has proven itself to be a durable part of the New Zealand economy and this is likely to continue for the foreseeable future” said Chris Nixon, Principal Economist and lead author of the report”.

The key drivers of the demand are population growth and rises in per capita income predominantly from Asia (particularly China). This is despite competition from subsidised dairy industries, plant-based milk substitutes, synthetic foods and supply constraints in New Zealand around improving freshwater quality, climate change regulation, and mitigation associated with climate change.

“Not only will the dairy industry see us through the COVID lockdowns and recession it will continue to be a solid performer. Supporting this growth will be continued East Asian growth, flexibility of our supply chains and the institutions that govern the rules around food processing” commented Chris Nixon.

Nixon warns that we are unlikely to see a reduction in subsidy driven competition from the EU and US in fact they have increased in the COVID recession. Also continuing tensions between the US and China on trade are likely – no matter who is in power in the US. A possible bright spot is increased access to the British market, but it remains to be seen how this will shake down in our FTA negotiations.

“Domestic subsidies from the EU and US continue to dampen down dairy prices around the world damaging many economies including New Zealand’s. And other trade tensions are likely to simmer along, particularly as the US and China square off”.

Many of the risks we face are domestic. Restoring the confidence in the dairy sector should be a priority for the government. The have made a start on this by allocating $44 million into projects that are geared to furthering our understanding of freshwater mitigation and climate change adaption.

“The government has also shown flexibility on new freshwater regulations although the key to success will be how these rules play out on a catchment-by-catchment basis. More work is also required on how we will meet climate change methane reduction targets, particularly those out to 2050.”

“New Zealand’s exposure to North American markets is limited because their commodity markets are fiercely protected. Also, recessions tend impact more lightly on food commodity products relative to consumer products. These factors have acted in our favour during COVID” said Nixon.

For further information please contact:
Chris Nixon
Principal Economist
021 633 127
chris.nxion@nzier.org.nz

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