Yesterday the global dairy trade auction was held. This is the market place that tends to drive the internationally traded price of dairy products. Prices are still going down as they have since Feburary. The rate of decrease was less than previous drops. Only 1.1% rather than the colossal drop on April 1st. Hopefully this means that the prices are starting to stabilize at a new level.
But what does this all mean for the NZ economy? Well what better source than our Reserve Bank governor; Graeme Wheeler. Yesterday he gave a fascinating speech to DairyNZ in Hamilton entitled “The significance of dairy to the New Zealand economy“.
The essence of which to me was that the international dairy trade of whole milk powder to China saved our arse (and probably the arse of the National party) during the latter part of the global financial crisis.
But that for NZ to carry on solely depending upon growth in it is risky. Other big milk producers like the US are seeing the value of our trade to China and will/are gearing up to take a large piece of that action. The Chinese government itself is trying to improve the quality and production of milk and derived products. It is interesting to see that dairy farmers themselves are increasingly cautious about further value growth – as expressed in their investment decisions.
I’ll probably write more on this over the next week. But here are some more graphs to entice readers to have a look at the speech.
Share of primary exports to China (annual total) “China is our largest export market for every agricultural commodity except beef (where it is our second largest market behind the United States). It purchases a third of New Zealand’s dairy exports “
Chinese imports of dairy products “A second risk is that a strong competitor enters the Chinese market and threatens our market share. New Zealand supplied over 70 percent of China’s dairy imports in 2013”
Dairy debt (June years) “Dairy debt almost trebled over the past decade, and currently stands at $32 billion. It is concentrated among a small proportion of highly leveraged farms with around half of the dairy debt being held by only 10 percent of dairy farmers. Strong export earnings saw the sector’s debt to income ratio improve between 2010 and 2012, although for the decade as a whole this ratio tracked steadily upward”
Value of farm sales and credit growth “Dairy farmers are therefore generally taking a cautious approach in the knowledge that the current high prices can turn around quickly. This is encouraging to see given the vulnerability of the sector and its already high debt load.”
&&&
Powered by WPtouch Mobile Suite for WordPress
