Dairy holds strong but the race is on for productivity growth

Over the past year, we have seen record milksolids production. In the 2024/25 season, average milksolids per cow reached a new record of 414kg, up from a five-year average of 400kg. Meanwhile, cow numbers declined 0.5%.

On top of this, New Zealand is still the lowest-cost milk producer in the world. Our pasture-based system (where cows graze outside year-round rather than being housed) and our focus on homegrown feed gives us a natural cost advantage that no other major dairy-producing country can currently match.

From an economic perspective, however, a critical scorecard for how our sector is performing over time is via productivity growth.

Productivity growth matters for competitiveness because it indicates levers farmers can actually control. Prices, weather and regulations are largely beyond our control, but how efficiently we use our land and inputs is not.

Total Factor Productivity (TFP) measures how much milk we get from all our inputs combined – such as land, feed, labour and capital. Unlike measures like milk per cow, which focus on a single part of the system, TFP shows whether we’re genuinely becoming more efficient or simply spending more to produce more.

Improving TFP is how we stay competitive no matter what global prices do.

Since 2012/13, New Zealand’s TFP index has been flat. This can, in part, be viewed as the sector holding steady in the face of some dramatic upheavals. Farmers have weathered extreme weather events, volatility in payout prices, trade disruptions, and rising compliance costs – and have come out the other side still standing.

While, in the short term, TFP stability shows resilience, in the long term, flat productivity growth is not something we can ignore.

While New Zealand has held steady (and Australia has declined), other nations have progressed. The United States dairy sector, for example, has been growing its productivity at 2.5% per year, driven by sustained investment in research and technology. Every year that gap persists, our hard-won cost advantage may get compromised in the long run.

Higher productivity growth means producing the same amount of milk with fewer inputs (lower feed costs, efficient use of staff, better use of land), or more milk with the same inputs.

So when we look at the increasing productivity of our cows, what is holding TFP growth back? Part of the answer lies in our increasing use of supplements. They can help fill feed gaps, especially in tough seasons, but when they start replacing pasture or supporting higher stocking rates than pasture alone could carry, costs rise and margins tighten. That chips away at New Zealand’s cost advantage, leaving farms more exposed when conditions change.

Homegrown feed and pasture are at the heart of NZ dairy’s competitive advantage. Data across all farm systems show that productivity rises and falls with the amount of pasture eaten. Protecting and growing the pasture base – through better varieties, precision management, and smarter grazing tools – is probably the single most powerful thing the sector collectively can do to stay competitive.

New technologies like AI‑driven pasture tools could help farmers further improve efficiency, but many are still unproven at scale and expensive. More research and investment are needed so farmers can have practical, affordable tools that genuinely lift productivity.

The choices made today on-farm – pasture, feed systems and technology – will shape the future of New Zealand dairy. We’ve shown we can be resilient. The next step is making sure we keep and enhance our edge.

Find valuable tools to support your business at dairynz.co.nz/business-resources

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