New Zealand’s Finance Minister Bill English has ruled out any Government intervention as its dairy sector faces further milk price reductions and a contraction of supply.
As producers respond to lower prices and fear deteriorating weather conditions, New Zealand milk production may be down about 2% in the year to June.
“While the pressure seems to be growing for now, we’re pretty confident that between the banks and the farmers, they can get through it,” English is reported as telling New Zealand parliament’s Finance and Expenditure Committee earlier this week.
English was responding to recent reports by Australian banks who were worried about a further year of low dairy returns and their impact on New Zealand farmers’ debt, as most of the major banks in New Zealand are Australian-owned.
It’s the second time in the past six months that the New Zealand government has said ‘no’ to helping out its struggling dairy farmers. Back in August last year its Prime Minister John Key told them that there would be no government dig out.
Earlier this week the fourth Global Dairy Trade (GDT) of 2016 recorded a drop of 2.8%, making it the fourth consecutive drop in dairy product prices.
It came after a 7.4% fall on February 2, while the previous two Global Dairy Trade auctions also recorded declines of 1.4% and 1.6% respectively.
The New Zealand milk price is expected to remain at about $4 a kilogram this season and $4.60 for the 2016/17 season.
English is reported to have warned that the milk price will never reach $8 a kilogram again as competing markets could now respond to such high prices by producing milk “more quickly than we can imagine”.
Dairy is the flagship industry of the New Zealand economy and directly, discernibly impacts the New Zealand dollar over the last decade.
It is estimated that 9 out of 10 Kiwi dairy farmers took on extra debt in 2015, while some economists in that country estimate that most suppliers will receive a net profit this season of less than $20,000.
Tale of Two Hemispheres
However, northern hemisphere milk production continues to grow strongly.
With the abolition of quotas European milk production was up 5.3% in November, compared to November 2014, while year to date production is running 2.2% ahead.
European dairy exports are also growing, with the amount of European Skimmed Milk Powder (SMP) exports increasing 6% in 2015, compared to 2014, whereas butter exports have rocketed up 30%.
Similarly, US milk production grew by 1.2% in the year to November, with a further 1.7% increase predicted for in 2016.
It is understood that US producers are benefiting in particular from lower feed costs, which are providing some offset to falling milk prices.