Low dairy prices favor New Zealand in "cost war" with Europe: expert

New Zealand farmers might be tightening their belts because of the global plunge in dairy prices, but they stand to benefit in the long term, an expert said Friday.

"The low prices are the best thing that can happen as it will limit the European expansion," Lincoln University agribusiness and food marketing program director Nic Lees said in a statement.

New Zealand and Europe were currently fighting a "cost war," he said.

"Quotas have come off production in Europe so they are expanding production. This is similar to what is happening in oil with expanding production due to shale gas," Lees said.

"Ireland, for example, is planning to increase milk production by 50 percent."

New Zealand was "the Saudi Arabia of milk" -- the lowest cost producer -- but it needed to focus on grass-based production to weather the storm.

"Grass will always be the lowest cost source of feed and New Zealand has the most efficient grass-based dairy system in the world," he said.

"Ireland can grow grass too, but currently they utilize less than half what they grow. The large housed dairy operations in Europe are also only profitable at high milk prices."

However, high prices were unlikely to return soon.

Dairy giant Fonterra has told farmers to expect a payout of 4. 70 NZ dollars (3.61 U.S. dollars) per kilogram of milk solids -- well below the 6 NZ dollars (4.61 U.S. dollars) that many farmers need to be viable -- but farmers needed to be profitable at 5 NZ dollars (3.84 U.S. dollars), he said.

Opportunities existed in other areas, such as beef exports.

"Beef is a great story with China needing to increase its beef imports by up to 20 percent a year for the next five years to meet its surging demand for protein," he said.

The average price on the fortnightly Fonterra-run GlobalDairyTrade auction over Wednesday night fell by 3.6 percent to 2,620 U.S. dollars a tonne -- or 51 percent down from the peak dairy price in February 2014.

Analysts have argued that Russia's trade war with Europe is sending European dairy products on to the global market and driving down prices.

The government's Statistics New Zealand agency said last month that export values of milk powder, butter and cheese -- New Zealand's largest export commodity group -- fell by 41 percent year on year in February to 913 million NZ dollars (681.39 million U.S. dollars), while the quantity was down 10 percent.

More than three-quarters of the drop in value was due to falling exports to China, it said. Endi