16 April 2026 Climate change reshapes the economics of New Zealand’s dairy industry

New Zealanders understand the vital role the dairy industry plays in the economy and are already feeling the effects of changing weather on primary production. What is less well understood is the financial impact different climate change scenarios could have on an industry that underpins New Zealand’s economic wellbeing.

Lincoln University researchers, Professor Anita Wreford, Dr John Saunders and Meike Guenther, modelled the financial impacts of climate change and extreme weather events under a range of scenarios for New Zealand’s dairy sector, including global trade impacts. These figures aim to inform the dairy sector and government of the growing need to support farmers in adapting their operations sooner rather than later to equip them for the production challenges that lie ahead.

In Evaluating the economic impacts of climate change on Aotearoa New Zealand’s dairy sector, published in the Australian Journal of Agricultural and Resource Economics, researchers quantify the financial impacts of climate change on dairy farming up to 2100, including heat stress on animals, drought-driven declines in pasture growth and quality and uncertainty around feed planning beyond traditional seasonal and regional norms.

“There are currently few studies on the costs of climate change on agriculture that consider international trade implications, but this is vital as we are a country that relies heavily on importing and exporting goods. The current fuel price increases are an example of the critical need to understand how international markets affect our farmers’ bottom line,” says Professor Wreford.

The research indicates that climate change generally has a negative impact on the sector, with returns decreasing as temperatures rise. Extreme weather events, such as frequent droughts, would also incur losses in the dairy sector and could reduce GDP contributions by up to 32% by 2100.

In contrast, one scenario could bring greater revenue to farmers — temperature rises impacting global production could increase revenue for New Zealand farmers, with higher global dairy prices offsetting a decline in local production.

Significantly, the research shows that while adaptation strategies through pasture and feed management reduce some impacts in the short term, their effectiveness diminishes in the long term and under severe climate scenarios. This is largely due to the significant increase in feed costs needed to maintain dairy production. At higher temperatures, modelled for 2081-2100, farmers will need to purchase an additional $4.7 billion in feed annually – the equivalent of 20% of the total returns for the dairy industry by the late century.

“Bringing in the global dynamic to this research was really interesting,” says Professor Wreford. “We compete in international markets both to import feed for the dairy industry and to sell its products overseas. If our competitors are affected by climate change more severely than we are, we could benefit from higher global dairy prices. In this way, international trade can act as a buffer, helping shield us from some of the worst impacts of climate change.”

Central to combating the negative economic impacts of climate change is the need to implement adaptation strategies — and sooner rather than later — to safeguard economic stability and build resilience within the dairy sector.

Professor Wreford says strategies need to consider adaptation through the lens of multiple scenarios, as while temperature increases are certain, by how much and when remains unknown. She also believes the dairy industry needs to consider how it can support farmers in making transformative, system-wide changes as impacts intensify over time.

“We’re already seeing increasing impacts of climate change and weather variability. So, we need to start planning for what we're going to do. There is a perception that adapting to climate change is expensive. But it's also going to be expensive not to. Generally, the earlier you do things, the easier and less costly it is. It's vital to be prepared and to have the research and resulting evidence to provide solutions for farmers to adopt.

“To be successful, we need coordinated leadership from industry bodies, as there are limitations to what an individual farmer can do without wider support and infrastructure. Farmers also need consistent government guidelines and regulations on water quality and greenhouse gas emissions, so they know what they’re aiming for. Importantly, too, is the need for research and extension programmes to share knowledge and support farmers so they have the products they need when they need them.”

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This research was part of a project funded by the former Deep South National Science Challenge