Dairy industry in a state of over-supply

Author
Michael Sergel,
Publish Date
Fri, 29 May 2015, 6:45AM
Photo: NewsPixNZ/NZ Herald
Photo: NewsPixNZ/NZ Herald

Dairy industry in a state of over-supply

Author
Michael Sergel,
Publish Date
Fri, 29 May 2015, 6:45AM

Dairy farmers won't be holding their breath for an end to the problem of global over-supply.

Fonterra's Farmgate milk price for the season has slipped to $4.40 per kilogram on the back of increased global production.

JMIS director Andrew Kelleher says the removal of EU dairy quotas and low US production costs will sort themselves out over the next 12 months.

But he told Newstalk ZB's Andrew Dickens other factors are also contributing to the problem of over-supply.

"There were news reports only a couple of days ago that Brazil wants to increase milk exports as well."

How much Chinese investment is too much for our dairy sector?

Next year's price could be lower than previously forecast.

Increased supply out of Europe and the US and low demand out of China are keeping dairy prices down.

Andrew Kelleher says the long-term impact of relying on Chinese investment and exports to China is unclear.

"There's talk about China's role in international markets, that may be a little bit instrumental and manipulative."

New Zealand Herald business columnist Fran O'Sullivan says it's difficult to work out when enough is enough for Chinese investment in New Zealand's dairy sector.

"The question is whether the Government should apply more rigorous tests to stop outside players - of which Chinese firms are currently to the fore - setting up more processing operations in New Zealand until the local industry rebounds," she writes in the New Zealand Herald.

"Or whether dairy is now in a lengthy commodity "super" down-cycle where well-capitalised Chinese investors will in fact be a financial lifesaver for hard-pressed New Zealand suppliers?"