Dairy's role in sustaining New Zealand - Fonterra

4 Dairy’s role in generating growth
Export growth has been driven by a combination of strong global income growth for the
majority of the decade, as well as a change in the composition of the markets that we sell to.
As economies such as China and other parts of Asia experience higher living standards, their
tastes and preferences change, and staples such as rice, lentil and beans are replaced with
higher protein foods. The changing composition of New Zealand’s dairy markets is shown
in Figure 13 in Appendix G. China, for example, accounted for 0.4% of New Zealand’s dairy
exports in 1989 and now takes over 12%. The relative importance of major markets such as
the UK, Japan and Mexico has dropped over this period.
1.5 Contribution to Balance of Payments
The strong export growth from the dairy sector has been a key factor in New Zealand’s
current account deficit (CAD) narrowing in recent years. This is important because as the CAD
rises as a proportion of GDP, foreign investors and ratings agencies start to have concerns
over the ability of the New Zealand economy to withstand any unexpected negative
economic shock (such as a global pandemic or financial crisis). These concerns translate into
New Zealand having a higher risk premium attached to it on foreign borrowings – that is, it
becomes more expensive for New Zealand firms, households and the government to borrow
on international markets. The most obvious channel would be through higher household
mortgage repayments.
The strength of the dairy sector has been very evident as New Zealand recovers from the
global financial crisis and domestic recession. With domestic demand continuing to be
anaemic, it is the export side of the economy that is being relied on to generate economic
growth. It has recently been noted that dairy’s growth has resulted in New Zealand’s trade
surplus being at its highest level for eight years.
1.6 Contribution to employment
National
The dairy sector in New Zealand is a major employer, and is vital for a number of districts.
On-farm employment is around 24,000 nationwide, with dairy processing providing another
10,000 jobs. These figures do not include those dairy farmers who are registered as selfemployed.
Although dairy employment does not reach the employment levels present in a number of
services sectors (for example, there are 110,000 workers in pre-school and school education
alone), it provides more jobs than each of the finance and accommodation sectors (both
around 32,000); around 65% more than the sheep and beef farming sector (20,500); 75% more
than the fruit growing sector (19,300) and double the jobs in the wood processing sector.
Regional
In districts such as South Taranaki, Waimate, Otorohanga and Matamata-Piako, the dairy sector
directly accounts for between 1 in 4 and 1 in 5 of the total number of jobs in the region.
The sector will indirectly support many more jobs in industries that supply dairy, and that
experience the benefits of additional income flowing into the region due to dairy volume
and/or price growth.
4. Department of Labour (DoL), ‘Regional Industry Tool 2009’http://www.dol.govt.nz/services/LMI/tools/regional-industry-tool.asp
5. There is no official count of self-employed dairy farmers, but the figure has been estimated by Dairy NZ at around 10,000 based on
owner-operator and sharemilker numbers.