Tuesday, August 15, 2017

New Zealand sheep farmers turn to cattle as the world price of milk rises

See In the Land of Milk and Money, Dairy Boom Feeds Environmental Fears: New Zealand’s waterways are suffering environmental damage, coinciding with an expansion of the country’s dairy industry by Ben Collins of The Wall Street Journal.

Supply and demand curves shift for various reasons. On the supply side one shift factor is the price of another good the firm might make (if they can make more than one item). The world price of milk went up in recent years so farmers in New Zealand switched from sheep to cattle. That would shift the supply of milk to the right.

The demand increased for milk first, sending the price up. The demand increased or shifted to the right as incomes rose in China. So milk must be a normal good. Demand decreases for inferior goods, like Ramen noodles, when your income rises since you can afford better food.

Excerpts from the article:

"Rising incomes in the region, notably in China and India, have lifted millions into the middle class and driven up appetite for protein, including milk and other dairy products.

Global milk prices have surged as a result, prompting some New Zealand farmers to switch from sheep to dairy cattle. In the decade through 2016, the number of dairy cows rose by 28% to 6.6 million while the sheep flock shrank by 45% to 27.6 million, official data show."


"Cattle produce more waste than sheep, and some of it gets into rivers during heavy rain or over-irrigation of pastures.

The Tourism Export Council of New Zealand, a trade lobby, said it fears the country is “heading down a path where freshwater quality could lead to reputational damage to our ‘clean, green’ marketing promise we share with the world.”"

The article mentions that dairy is the country's No. 1 export while tourism is No. 2. "Seven out of 10 of New Zealand’s monitored rivers—mostly in lowland areas—are now potentially unsafe for swimmers, according to a government report this year on freshwater quality, which highlighted increased nitrogen levels and algal blooms."

If tourists can't swim in safe water, that industry is hurt. Another example of how life is full of trade offs: you can have more milk or more tourists, but not both.

"Under pressure from tourism operators and community groups, New Zealand’s government in February launched a program to make 90% of rivers safe for recreational swimming by 2040, through measures such as planting vegetation around rivers, new rules on fencing off pastures, and implementing stronger environmental guidelines for local authorities."

"Lawmakers are reluctant to criticize the dairy industry, which dominates many rural towns. Taxes paid by farmers help to pay for schools and hospitals, these lawmakers say, while booming dairy exports have helped New Zealand’s economic growth to outpace much of the developed world, including the U.S.

Nathan Guy, the minister for primary industries, said dairy farmers have voluntarily put up about 16,000 miles of fencing around rivers and lakes to prevent cattle from getting near, or in, waterways."

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