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Dairy price plunge drives call for cut in New Zealand interest rates

Xinhua, March 8, 2016 Adjust font size:

Farmers in New Zealand's pillar dairy industry have called on the central bank to cut interest rates in order to stave off mass bankruptcies following further falls in dairy prices.

New Zealand dairy giant Fonterra Co-operative Ltd. on Tuesday announced it was cutting its forecast payout to farmers this season from 4.15 NZ dollars (2.81 U.S. dollars) per kilogram of milk solids to 3.90 NZ dollars (2.64 U.S. dollars).

Opposition lawmakers said the cut would leave a "hole" of 8.2 billion NZ dollars (5.55 billion U.S. dollars) in the New Zealand economy.

Fonterra forecast its New Zealand milk production to be at least 4 percent lower than last season as farmers responded to the ongoing low prices.

Chief executive Theo Spierings said dairy exports and imports had been imbalanced for the past 18 months due to European production increasing more than expected, and lower imports into China and Russia -- the two largest importers of dairy.

"The time frame for a rebalancing has moved out and largely depends on production reducing -- particularly in Europe -- in response to these unsustainably low global dairy prices," Spierings said in a statement.

"The long-term fundamentals for dairy are positive with demand increasing at over 2 percent a year due to the growing world population, increasing middle classes in Asia, urbanization and favorable demographics."

The Federated Farmers industry group called on the Reserve Bank of New Zealand to cut its official cash rate (OCR) from the current 2.5 percent at its next review on Thursday.

"Anything that can ease the pressure on farmers' bottom line will help get as many dairy farmers as possible through the current season," Federated Farmers dairy industry chair Andrew Hoggard said in a statement.

"There will be a new level of resilience that comes out of what we're experiencing, but that will be lost if farmers are forced out of the industry. Economic factors support a cut in the official cash rate and that would be a welcome boost after today's news."

The main opposition Labour Party said Fonterra's forecast payout had more than halved in two years, down from a total of 15 billion NZ dollars (10.16 billion U.S. dollars) to just 7 billion NZ dollars (4.74 billion U.S. dollars).

"This will put real pressure on rural communities and farmers that are struggling to cope with high debt levels and three seasons of a low payout," Labour finance spokesperson Grant Robertson said in a statement.

"It could push more farmers to the brink of bankruptcy. That will cause real damage to their communities."

The opposition Green Party said the payout cut highlighted the government's failure to diversify New Zealand's economy and export base.

"Recent significant policy changes to EU production quotas and U.S. domestic subsidies mean that dairy prices may never be the same again," Green Party co-leader James Shaw said in a statement.

"Falling dairy prices must be a signal to massively ramp-up government investment in R&D (research and development) to diversify our economy away from its dependence on one export commodity." Endit