The Government’s plan to eradicate Mycoplasma bovis by culling more than 150,000 head of cattle will have a similar impact on the sector as a drought, says ASB Bank chief economist Nick Tuffley.
However, the resulting curb in production could put upward pressure on dairy prices, thereby dulling the impact, Tuffley said.
The Government today said it had reached an agreement with farming sector leaders to attempt to eradicate the disease, which is not harmful to humans.
The cull of about 126,000 animals in addition to the 26,000 already underway would take place over one to two years and cost $886 million over 10 years, the Government said.
“Using very rough figures, it suggests that production will be impacted in similar way to what you would expect with a drought,” Tuffley said.
“And you do, in that circumstance, have the potential for prices to be supported over the period when the culling happens, so there will be some revenue offset through a higher milk price.”
A 10c rise in the milk price represents a $180 million increase in revenue for the sector.
Tuffley said that in rough terms, a 30c lift in the milk price would offset the loss in revenue suffered from lower production.
“But, as we see in droughts as well, we will get people [who] will suffer a disproportionate impact because they will be the ones who will have all the cash-flow pressure arising from having their stock culled, waiting for compensation, and then having to rebuild their herds,” he said.
“At an industry level, the impact from a revenue perspective will be blunted by the extent to which milk prices get forced up.”Article sourced from www.nzherald.co.nz