Farmers cautious following bullish Reserve Bank outlook

12 April 2011

While Federated Farmers welcomes the Reserve Bank’s Outlook for commodity prices and implications for New Zealand monetary policy, with Federated Farmers Dairy chairperson urging caution after returning from a fact finding visit to the United States.

“I fully agree with the thrust of the Reserve Bank’s argument. There has been a structural shift to food commodities because when it comes to commodities, food is the new black,” says Lachlan McKenzie, Federated Farmers Dairy chairperson.

“United States (U.S.) industry sources told me there that the U.S. had recorded its highest ever milk production for the month of March.

“We tend to forget that while New Zealand is the second largest dairy exporter on earth, we’re only the eighth largest dairy producer overall. Our milk output is some five and half times smaller than the largest, which happens to be the U.S.

“The global demand for food is not a one-way bet because figures released today by the United States Department of Agriculture’s (USDA) Foreign Agricultural Service confirm what I saw and discussed with farmers in the U.S.

“Between December 2010 to February 2011, the northern winter, the U.S. exported 392,166 tonnes of dairy product, which is an increase of 47 percent on a year ago. As a point of comparison, we exported around 534,000 tonnes over our June-August 2010 winter period, so the gap is well and truly closing.

“U.S. milkpowder shipments were 153 percent up on the previous year with the U.S. tripling sales to Southeast Asia over a three-month period - almost half of all U.S. volume.

“Clearly, we’re not the only ones to have noticed strong demand drivers emerging from Asia. Higher prices relative to subsidy distorted local markets makes exporting a sound proposition I found a new willingness in the U.S. dairy industry to look outwards.

“Export growth is a big thrust of President Obama’s administration and that’s to be welcomed because negotiations on the Trans Pacific Partnership are a tangible result.

“Yet it means New Zealand dairy exporters and farmers need to at the top of their game to be competitive against exporters from other countries who get state aid. We’re optimistically cautious so long as domestic costs don’t trip up our export efforts.

“The focus of U.S. dairy exports is on ASEAN economies like Indonesia, Philippines and Vietnam and the U.S won new markets in Bangladesh, Egypt and China. The latter two are key emerging markets for Fonterra Cooperative Group.

“New Zealand needs to recognise that the U.S. and European exporters will be focussing on the same markets we have our gaze upon.

“This is why we cannot take commodities for granted and why all farmers need an environment rich in innovation with the lowest cost base possible,” Mr McKenzie concluded.

ENDS

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