DAIRY PRICES ARE DOWN BUT SO IS THE DOLLAR SO WHAT'S THE PROBLEM?
By Richard Harman (author)
Treasury now says dairy prices are unlikely to recover till late this year or early next year.
That’s a step back from the Budget forecasts when it forecast dairy prices to recover in the second half of the year.
On Tuesday night the global dairy price index fell another 1.3%.
Treasury Secretary Gabriel Makhlouf told Parliament’s Finance and Expenditure Select Committee on Wednesday that the fall would lower the terms of trade and slow growth in the total dollar value of goods and services,.
But he said on his visit to the Fieldays in Hamilton last week he said many people he spoke to could see themselves working through the price cycle.
“And the banks appear to have a similar view,” he said.
Deputy Treasury Secretary Girol Karacaoglu said the fall in prices was balanced by the drop in the Official Cash Rate and the recent fall in the dollar.
Looking out to the future Mr Karacaoglu said New Zealand‘s long term potential growth rate was around 2.8%.
He said both the Reserve Bank and Treasury agreed on this figure.
Challenged by National MP Chris Bishop as to whether this was better than five or ten years ago (when Labour was the Government) Mr Karacaoglu said in fact it hadn’t changed much.
After the Committee had questioned Mr Makhlouf it was the turn of Finance Minister, Bill English.
He conceded that “the track” had changed.
But he said adjustments that might be expected for a lower commodity price track were occurring – “probably a bit sooner than people expected”.
“I don’t know if we expected the exchange rate would be under 70 cents even just three or four months ago,” he said.
He reminded the Committee that the dairy industry made up only 20% of New Zealand’s exports.
“The other 80% look in probably better shape than we might have expected,” he said.
“Tourism is back to number one; international education which is the third earner is going pretty well.
“It’s picked up after quite a number of years effort to achieve that and then other smaller sub groups are going pretty well --- kiwifruit, win, IT.
“All going pretty strongly.
“A number of those industries have been organised around a sort of 80 cents plus US exchange rate and find themselves with a 70 cents US exchange rate and probably dropping so they are probably doing fairly well.” Labour’s Finance spokesman, Grant Robertson, made little headway trying to get Mr English to concede that he was failing to honour his promise of fiscal surpluses.
It was left to Green MP, Russel Norman, to ripple the waters of economic complacency which seemed to flow around the committee room.
He pointed out that greenhouse gas emissions had increased substantially on the 1990 base that is sued by the Kyoto Agreement to measure them.
He didn’t say – but in its recent consultation paper, the Ministry for the Environment does say --- that post 2020 (the next target on the climate change agenda) New Zealand is expected to have harvested its post 1990 forests which currently offset the increased emissions.
Mr Norman said New Zealand would end up having to spend billions of dollars to purchase carbon credits off countries which had a surplus.
The reply from the Minister was somewhat enigmatic: “You’re always looking for the least cost option and that’s going to happen in real time over the next six months or so>”
The timeframe was a reference to the lead up to the December Paris international conference which will set the post 2020 targets.
Though there were then a few firefights with Mr Peters over issues like two lane bridges in Northland ultimately the Minister and his officials were able to leave the Committee more or less politically unscathed.