But it won't be the 'tsunami' that everyone fears because world dairy consumption is also predicted to rise annually by 2.4% - 26-27 billion L - driven mainly by China but also India and South East Asia. Current world production is about 150 billion L.
Bellamy was in the country last week to discuss this and the sovereign debt crisis in Europe with Fonterra
and other agricultural leaders.
Some of the extra European production will be soaked up by local markets which are stagnant at present because of the economic situation but Rabobank believes they will pick up.
Europe has some population growth and "people in Holland eat about as much cheese as anybody is going to eat but as you go into the Eastern Europe there's still a bit of growth."
Dairy is tipped to pick up by about 0.6% annually in Europe. That will soak up about 3.5 billion L of the extra 9 billion, leaving 5.5 billion L to flow onto the world markets.
The increased demand out of Asia over the
next five years should absorb that.
Bellamy says New Zealand production is up 9% this year, the US has increased its exports from 7% to 13% of total production and Europe and Australia have also had good season.
"But world prices
have softened but they haven't nosedived," he told Dairy News.
The Chinese infant formula market is supporting the world markets and, from a European point of view, so is Russian demand for dairy.
The message to the New Zealand dairy farmer is that "we are relatively confident of that compound annual growth rate of world demand of 2.4%".
Whole milk powder should hover in the range of $US3300 to $US3800 per tonne in the next few years.
"That should give New Zealand farmers the confidence that the current rate of expansion is sustainable for the next few years," he says.
