A new report is highlighting the dairy sector’s contribution to the New Zealand economy, and its role as ‘shock absorber’ for regional communities in times of volatility.

The report, commissioned by DairyNZ and the Dairy Companies Association of New Zealand, also shows the importance of ongoing investment in trade liberalisation and resilient infrastructure.

DCANZ executive director Kimberly Crewther says the report shows the long-term picture for the dairy sector is solid and it will continue to contribute significantly to the New Zealand economy.

“Dairy generated nearly $26 billion in export revenue for the year to April 2023, which accounts for around one in every four export dollars earnt by New Zealand.

“The value of dairy exports grew by 45 per cent over the past five years, which helped support the national economy through the pandemic.”

Supporting economies

DairyNZ head of economics Mark Storey says the spread of farms across the country allows dairy to support regional economies, maintaining some local spending even when milk prices drop.

“Dairy’s export earnings translate into well-paying jobs in the sector and enable the purchase of goods and services from other sectors,” explains Mark.

“There will inevitably be an impact from the recent fall in milk price, with farmers limiting non-essential expenditure and limiting their purchases short-term where possible. However, this analysis shows that the sector itself absorbs some of the impacts in dairy farmers’ profits.

“Despite lower milk prices, dairy farmers will continue to hire staff and purchase essential supplies to run their farms.”

In the year to March 2023, dairy processors spent around $19.6 billion of goods and services from both farms (purchasing milk) and other industries. Dairy farmers in turn spent $7.9 billion on goods and services in the same period.

“Around 55,000 people are employed in dairy, both on and off farms, generating around $3.6 billion annually in wages,” says Mark.

“At a community level, dairy is a significant employer. For instance, in Waimate, one in three jobs are in the dairy sector and wages make up 52 per cent of total wages paid there.

“Dairy also employs more than 20 per cent of workers in both South Taranaki and Westland districts, and pays over 40 per cent of both districts' total wages.”

Dairy accounts for more than 1 in 10 jobs in a further eight districts, while paying more than comparable sectors, which amplifies the value of dairy employment to communities.

Exports

Dairy processing and farming remain New Zealand’s most internationally connected industries. Individual dairy products including whole milk powder, skim milk powder, butter and dairy spreads, protein products and cheese are all multi-billion-dollar exports.

“The analysis highlights that New Zealand dairy exporters continue to change their market offerings in response to demand, with the proportion of whole milk powder reducing from 36.9 per cent in 2019 to 31.6 per cent in the year to April 2023, while dairy protein products having increased to 13.2 per cent of the product mix, up from 8.6 per cent in 2019,” says Kimberly.

Kimberly says the industry continues to face significant trade barriers and costs. Reducing them will support exporters to continue growing the export value of New Zealand dairy products.

“Sense Partners estimate that New Zealand dairy exports continue to incur more than $1.5 billion of tariffs and $7.8 billion of non-tariff measures costs. 86.7 per cent of global dairy consumption continues to sit behind trade tariffs of 10 per cent or more.

“This underscores the importance of New Zealand continuing to invest in efforts to remove trade barriers, including those that remain for dairy in some free trade agreement partner markets. Fewer trade barriers would mean a greater diversity of export opportunities for New Zealand dairy companies and greater ability to navigate market volatility.”

The report also found that dairy’s ability to provide a resilient contribution to New Zealand economy would be enhanced by infrastructure resilience. Exporting success requires efficient and reliable movement of milk and products from farms to factory, and to ports.

The report has examined the short-term freight cost impact of disruption on several vital roads, prone to disruption. For example, a closure of state highway one at Moeraki is estimated to result in a daily cost of $809,900.

Rail reliability is also a resilience priority, with rail access to the port of Tauranga, which handles 53 per cent of dairy exports, currently reliant on a single rail line.