Originally Posted by
xafalcon
The NZ dairy farming advantage does not come from scale. As you note, any country can do that. It comes from NZ's ability to graze animals outside year-round. Pasture grazed grass is the lowest cost feed for dairy cows. NZ climate generally grows grass 10-11 months of the year. That is the major advantage that most other countries cannot match.
The intensification of NZ dairy farming through the use of feed supplements increases output, but decreases profit per unit of output because milk produced off supplements is more expensive. So the more intensification in NZ dairy farms through supplement feeding, the closer their production cost comes to other countries production cost. And so the commercial advantage is reduced.
The other advantage NZ dairy production has is our temperate climate. Cold cows need to be housed, hot cows need to be cooled, or milk production reduces. Both add cost (or reduce output if not addressed) to overseas producers that most NZ dairy farms don't have to worry about (parts of Southland are an exception)
If NZ dairy farming is to go down the commodity route, de-intensification on farms will improve economics if/when land values start reflecting the true income they generate (this is not currently the situation)
But value-add is by far the better way to ensure long term improving returns. It will just be very difficult to sell this to the shareholders who will have to stump up a lot of cash to fund the development. Returns from this won't start flowing for 3+ years