New directions for live dairy cattle exports could see New Zealand competing with Australia in a hunt for new and emerging market opportunities.
Any re-start of NZ live cattle exports is expected to face headwinds against the slowdown in Chinese demand as bearish farm sector fundamentals in China point to slower trade for the foreseeable future, according to a new industry report.
The just-released Rabobank report – New Directions for Oceania Live Dairy Cattle Exports – shows NZ’s focus on dairy heifers to China was a lucrative market for farmers across much of the past decade, offering significant trade opportunities and attractive prices for dairy cattle.
But with a government ban on live animal exports by sea in place since April last year, and Chinese demand for dairy heifers waning, future prospects for the sector are far less certain, report author RaboResearch senior dairy analyst Michael Harvey said.
Recently, a change of government in NZ has prompted discussions of a possible shift in policy, with potential changes surrounding a restart in live exports via sea including “gold standard” rules for animal welfare, along with purpose-built ships.
Public consultation on the possible reinstatement of livestock export by sea is likely to kick off by the end of 2024.
Meanwhile, Harvey said the topic has historically been divisive in the farming community, so uncertainty prevails in the short term as to whether trade will be reinstated.
He said the broader policy environment around live exports in Australia, NZ’s main source of competition for live exports prior to the ban, is also far from clear.
“While there has been no shift in policy on the live exports of dairy cattle, in May 2024 the federal government announced that the export of live sheep by sea from Australia will end on May 1 2028.”
Should NZ trade of live animal exports be reinstated at some stage in the future, Harvey said, given the slowdown in Chinese demand, Kiwi exporters would likely encounter a markedly slower market.
Oceania live dairy cattle trade volumes peaked at 233,000 head in 2022, with a combined total of 815,000 dairy cows exported from Australia and NZ between 2018-2023.
“However, by mid-2024, the flow of dairy heifers from Australia and NZ to China has slowed to barely a trickle due to a combination of NZ’s ban on exports along with a slowdown in Chinese demand, resulting in an annual decline of 83%.”
Unsurprisingly, the drop in trade with China has taken a heavy toll on indicative pricing in the market for live dairy cattle exports.
Based on RaboResearch analysis of Australian export data, the indicative Australian export FOB price per dairy cow peaked at US$3000 in 2022 but fell to US$1500 per head in 2023.
“The growth journey of China’s milk supply, a key driver of increased heifer exports, is at a critical juncture.”
The industry is grappling with an oversupply of raw milk, leading to falling local milk prices and lower farm profitability.
Moving forward, a recovery in Chinese heifer demand is possible, but it will require a combination of improved milk prices, increased farm profitability, and further government policy to support farm expansion and herd rebuilding.
“Bearish farm sector fundamentals in China, a market that is irreplaceable, point to slower live export trade for the foreseeable future.”
Southeast Asian markets, including Singapore, Malaysia, Thailand, Indonesia, Vietnam and the Philippines, are a largely milk-deficit region, with self-sufficiency rates ranging from 1% to 50%. Based on RaboResearch modelling, the combined import deficit totalled more than 10 billion litres of liquid milk equivalent in 2023.
More recently there has been a renewed focus on local herd expansion and milk supply growth, through private and public investment, across some southeast Asian economies to specifically address supply chain and milk price risks.
This initiative secures a small but steady flow of live dairy heifer exports into the region.
Reduced demand from China provides a more attractive opportunity for buyers in southeast Asia, which might lead to an increase in trade moving forward.
But as history shows, the southeast Asian region cannot replace China in volume terms, with annual volumes never surpassing 25,000 cows.
During the recent cycle between 2018-2023, China consistently accounted for over 80% of all heifer export numbers from Australia and NZ.
So, Harvey said, “the hunt may well be on for new and emerging market opportunities”.
