03 July 2007
Speaking at the Tasmanian Dairy Conference on Monday, Senior Rabobank dairy analyst, Tim Hunt said that Tasmania was in a prime position to capitalise on the recent explosion of global dairy prices.
Mr Hunt, a member of the bank’s well respected Food and Agribusiness Research (FAR) unit, said that a combination of strong demand and slow supply growth had ensured a tight international market for dairy products for at least 12 months now.
“Demand has taken off, particularly in developing markets like Asia and Latin America, on the back of the best sustained run of economic growth seen for 30 years and local trends of westernisation, urbanisation and government promotion,” Mr Hunt said.
“Suppliers have been struggling to keep up with this rising appetite for dairy, with the European Union’s (EU) reduced support for its dairy industry and a lack of growth in Oceania due to rising production costs, both impacting supply.”
However, it is a series of short-term supply shocks that have had the biggest impact on the market, according to Mr Hunt.
“The Australian drought sent shivers through the market, but it has been the rapid development of biofuels and the collapse of supply in Argentina that sent the market into panic,” he said.
The rise of biofuels pushed global feed grain prices into record territory, dampening the enthusiasm of farmers in intensive feeding regions of the world to respond to rising milk prices, Mr Hunt told the audience.
Rising feed prices, a dry summer, more recent flooding and export taxes also devastated the Argentine dairy industry – completely stalling a key engine for supply growth, Mr Hunt said.
“These developments turned a tight market into significant deficit, and prices just took off.”
“The key question,” Mr Hunt said, “is how sustainable is this current boom?”
Mr Hunt cited the projected growth of the global economy over the medium term, strength of corporate and government promotion and the achievement of ‘breakthroughs’ in significant markets as factors likely to support sustained demand growth in coming years.
Exporters are likely to continue to have trouble keeping pace with demand, Mr Hunt said.
“ Australia is still recovering from drought and NZ growth is likely to be restricted to that achievable through productivity improvements and some conversion of agricultural land to dairying. In addition, much of the world is still hampered by what are expected to be ongoing high grain prices,” he said.
Mr Hunt noted that the dairy market has experienced sharp falls in the past, but that the risks do not loom large at present.
“Things can change pretty quickly: we have seen this in the past, and the thinness of global trade means relatively small changes in large markets like the US, EU and China do have large impacts on global pricing”.
However, it is difficult to see anything on the horizon that would substantially derail pricing over the next 12 months.
Over the medium term Mr Hunt said that prices were expected to moderate, as some demand is choked off and supply begins to pick up. However prices are anticipated to remain, on average, well above their historic levels over the next three to four years.
“ Tasmania is one of the few export regions of the world capable and willing to expand supply in the short term. Its lack of grain reliance also shields it, to a large extent, from the impact of biofuels being felt in other countries. As such, the Tasmanian dairy sector is in a prime position to capitalise on these favourable global market conditions,” Mr Hunt said.
Contact
For further information please contact Denise Shaw, Public Relations Manager (Tel: +61 2 8115 2744) or email on sydney.mediarelations@rabobank.com.