cows on pasture
June 28, 2017

New Feed Rules Could Cut New Zealand Production

 |  By: Fran Howard

Increased enforcement of feed regulations in New Zealand could mean that producers there will need higher milk prices to enhance output per cow and maintain the growth in national milk production. If this enforcement leads to a contraction in output in New Zealand, world dairy markets could tighten, which often means more business for U.S. dairy exporters.

Many dairy producers in New Zealand have already switched to high-input systems and away from low-input pasture operations. That means the new feed regulations could impact a larger number of dairy farms and dairy cows today than they would have a decade ago.   

“New Zealand has a global reputation for producing natural dairy products from grass-fed cows,” says Sarina Sharp, agricultural economist with the Daily Dairy Report. “However, today only a small percentage of New Zealand's dairy herds are exclusively grazed. High-input systems have grown in popularity since 2000, when 70% of the nation’s herds were grazed.”

According to DairyNZ estimates, only 30% of New Zealand dairy herds were grazed in low-input systems in the 2013-14 production season. For these herds, supplemental feed was limited to 14% of total feed intake. About the same number of cows were housed in high-input systems that season, and feed imports accounted for at least 20% of the ration for these herds.

"The use of supplemental feeds likely peaked along with the milk price in 2014,” notes Sharp. “That year, New Zealand overtook Europe as the world's largest importer of palm kernel extract, which is viewed as one of the cheapest, most effective ways to boost milk production, particularly when pasture growth is insufficient.”

In 2015, Sharp notes that New Zealand imported a record 2.22 million metric tons of palm kernel extract. “However, anecdotal reports suggest that feed merchants stocked up on more product than their dairy customers wanted, and palm kernel extract imports in 2016 dropped by one-third to four-year lows,” she notes. “Sharply lower milk prices in 2015 and 2016 left dairy producers with little cash to spend on supplemental feeds like palm kernel extract, so producers had to rely more heavily on pastures.”

About that time, milk processors in New Zealand also began to discourage the use of palm kernel extract. In September 2015, Fonterra issued voluntary guidelines requesting its members feed no more than 3 kg of palm kernel extract daily to each cow—half of the 6 kg per day limit that DairyNZ recommends for emergency diets during drought, Sharp notes.

In August 2016, government-owned Landcorp told the dairy producers who used the firm’s land to pasture 55,000 cows that they should discontinue use of palm kernel extract entirely.

Fonterra recently announced that its voluntary limits on the use of palm kernel extract would become mandatory, Sharp notes. In addition to environmental concerns, Fonterra has found that when palm kernel extract is fed in large amounts, it changes the ratios of fatty acids in milk and results in milkfat that is “difficult to process into products like butter, and does not meet customer requirements for other products,” according to a letter the cooperative sent to its farmers in November.

“Fonterra has developed a test to ensure that its members are adhering to the palm kernel extract feeding limitations, and starting in the 2018-19 season, the co-op will financially penalize producers who overuse the supplement,” notes Sharp. “Producers can limit the use of the palm kernel extract by increasing the use of other supplemental feeds or by relying more heavily on pasture, as many have done in recent years when milk prices were lower.”

However, if pasture growth is inadequate, many producers will be forced to spend money on other more expensive supplemental feeds. “By restricting use of the cheapest feed, Fonterra has limited its members’ ability to boost output in response to higher milk prices,” Sharp notes. “Without palm kernel extract, it will take a more pronounced increase in milk prices to entice dairy producers in New Zealand to purchase higher-cost alternative feeds, and milk output could respond less quickly to higher milk prices.”