Govt: Lighter rules insulating dairy shock

  • 23/07/2015
Finance Minister Bill English (Photo: Simon Wong)
Finance Minister Bill English (Photo: Simon Wong)

By Suze Metherell

Light regulation in the New Zealand dairy industry has insulated the wider economy from the sharp decline in prices for the country's largest export commodity, according to Finance Minister Bill English.

Prices for whole milk powder, the country's key commodity export, have plunged this year and dropped an unexpectedly large 10.7 percent in in the GlobalDairyTrade auction last week, sending the kiwi dollar to six-year-lows.

Dairy prices are now expected to remain lower for longer than previously forecast, amid higher global supplies, weak demand in China and an import ban in Russia on European dairy products, which are being sold into other markets.

Speaking at the Commerce Commission's annual conference in Wellington, Mr English said sound regulation had built a more resilient economy, and pointed to "the dairy price shock" as an example.

"I don't think there is much doubt in the past decades when New Zealand was more regulated, a price shock to the extent of the current change in milk prices would have paralysed this economy.

"In fact we saw that in the late '80s and early '90s in the agricultural sector when price subsidies were removed, a price shock in that case because of a policy decision.

"That paralysed communities and changed them quite dramatically because they lacked the resilience that goes with moving with the market and being subject to the competitive forces, day to day, week to week."

The weaker prices come as local production is rising heading into the country's peak supply period in October.

Fonterra, the world's largest dairy exporter, is expected to lower its forecast payout to farmers for this season following its board meeting next month.