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Dairy price plunge exposes "one-dimensional" Kiwi economy

Xinhua, April 2, 2015 Adjust font size:

The New Zealand economy faces a "black hole" of more than six billion NZ dollars (4.47 billion U.S. dollars), opposition parties warned Thursday, after global dairy prices saw their biggest drop in four years.

Prices fell by an average 10.8 percent to 2,746 U.S. dollars a tonne on the Fonterra-run GlobalDairyTrade fortnightly auction, with whole milk powder, the biggest selling export commodity, down 13.3 percent to 2,538 U.S. dollars.

The figure was well below the 3,500 U.S. dollars a tonne, which Fonterra has said it needs to meet its forecast payout of 4.70 NZ dollars (3.51 U.S. dollars) per kilogram of milk solids to its farmer shareholders this season.

That figure is down from a record 8.40 NZ dollars (6.27 U.S. dollars) per kg of milk solids last season.

Federated Farmers national dairy chairperson Andrew Hoggard told Radio New Zealand the overnight drop was worse than expected.

"Pretty much just adds to the pain we've already got. So for a lot of farmers, where we're at right now, isn't sustainable for most farmers long-term," said Hoggard.

Farmers needed a payout of at least six NZ dollars per kilogram of milk solids over the long term to remain viable, he said.

The fall in dairy prices and a failure to diversify was hurting the economy, both locally and nationally, the main opposition Labour Party warned.

"This 13-percent drop in milk powder prices will create an economic black hole of more than 6 billion NZ dollars," Labour economic development spokesperson David Clark said in a statement.

"New Zealand needs a modern, diverse economy that creates well- paying jobs across all industries. We are beginning to see the problems of a one-dimensional economy," Clark said.

The opposition Green Party said falling dairy prices signalled it was time for a moratorium on "economically and environmentally reprehensible" dairy farm conversions.

"This is not the time to be investing heavily in dairying when oversupply is already hurting dairy prices," Green Party co-leader Russel Norman said in a statement.

"There's only so much the environment can take, and we believe we're at that point."

The government's Statistics New Zealand agency said last month that export values of milk powder, butter, and cheese -- New Zealand's largest export commodity group -- fell by 41 percent year on year in February to 913 million NZ dollars (681.39 million U.S. dollars), while the quantity was down 10 percent.

More than three-quarters of the drop in value was due to falling exports to China, it said. Endi