Live dairy cattle exports: Government ban and China demand drop leaves future uncertain - Rabobank

The flow of dairy heifers from Australia and NZ to China slowed to "barely a trickle” by mid-2024. Photo / Lucy Penellum

The live export sector - focusing on dairy heifers to China - has been a lucrative market for New Zealand farmers, offering significant trade opportunities and attractive prices for cattle.

However, with a Government ban on live animal exports in place and Chinese demand for dairy heifers waning, the prospects for the sector are far less certain, according to a new industry report by Rabobank.

In its just-released report “New directions for Oceania live dairy cattle exports in a slower market”, Rabobank said New Zealand had enjoyed the advantages of the Chinese live export market for much of the past decade.

Report author and RaboResearch senior dairy analyst Michael Harvey said this ended in April 2023 when the New Zealand Government enacted a ban on all live exports by sea, including dairy cows.

He said the change of Government had recently prompted discussions of a possible shift in policy.

“Potential changes surrounding a restart in live exports via sea could include ‘gold standard’ rules for animal welfare, along with purpose-built ships.”

Harvey said public consultation on the possible reinstatement of livestock export by sea is likely to begin by the end of 2024.

“The topic has historically been divisive among the farming community, so uncertainty prevails in the short-term as to whether trade will be reinstated.”

Australia was New Zealand’s main source of competition for live exports before the ban,

Harvey said the broader policy environment around live exports there was 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.”

A slowdown in Chinese demand

Harvey said if New Zealand’s trade of live animal exports were reinstated at some stage, 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 New Zealand between 2018-2023.

“However, by mid-2024, the flow of dairy heifers from Australia and New Zealand to China has slowed to barely a trickle.”

Harvey said the slowdown began in 2023, due to a combination of New Zealand’s ban on exports, plus a downturn in Chinese demand, resulting in an annual decline of 83%.

RaboResearch senior dairy analyst Michael Harvey is the author of "New directions for Oceania live dairy cattle exports in a slower market". Photo / Rabobank / Scott Stramyk

“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 [free on board] price per dairy cow peaked at US$3000 in 2022 but fell to US$1500 per head in 2023.”

Harvey said the growth 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.”

Harvey said moving forward, a recovery in Chinese heifer demand was possible - however, it would 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.”

Other export markets

The report said the Southeast Asian markets were a large milk-deficit region, with self-sufficiency rates ranging from 1% to 50%.

These markets include Singapore, Malaysia, Thailand, Indonesia, Vietnam and the Philippines.

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,” Harvey said.

This initiative secured a small but steady flow of live dairy heifer exports into the region, he said.

“Reduced demand from China provides a more attractive opportunity for buyers in Southeast Asia, which might lead to an increase in trade moving forward.”

However, Harvey said history had shown the Southeast Asian region couldn’t replace China in volume terms, with annual volumes never surpassing 25,000 cows.

“In fact, during the recent cycle between 2018-2023, China consistently accounted for over 80% of all heifer export numbers from Australia and New Zealand.

“So, the hunt may well be on for new and emerging market opportunities.”