Updated 8.52am: Global competition for our dairy exports just stepped up a notch.

From today, the European Union has a deregulated milk production industry, meaning the quotas which have restricted the sector are now gone.

It's likely to see an initial flush of new product enter the market, which could further soften prices.

Federated Farmers dairy industry chairman Andrew Hoggard says New Zealand needs to remain competitive.

"It will recover in the long term, but any sort of geopolitical shocks could set everything back."

Rabobank's Hayley Moynihan says European producers are targeting the same markets New Zealand is - China, Southeast Asia, the Middle East and North Africa.

And she says the likes of Ireland and The Netherlands trade on a similar clean, green image.

"Companies are receptive to that because they are looking to diversify supply in some cases, and reduce reliance on New Zealand."

She says that initial wave of supply out of Europe may further weaken prices.

"It will hurt initially, in terms of milk coming on to the world market at a time when the world dairy market pricing is quite soft. And that is likely to persist for the next 3-6 months."

Hayley Moynihan says in the longer term, the global market is likely to need the additional milk for countries like China, where demand is strong.