Nathan Guy back from Europe and China and optimistic about dairy
By Richard Harman (author)
One big question hangs over the economy and with it the political future of the Government
The question is the outlook for dairy prices.
Primary Industries Minister Nathan Guy has just returned from a first-hand look at New Zealand’s major dairy markets in Europe and China.
He is the first Primary Industries Minister to go to the OECD Agriculture Ministers conference in Paris since 200x and then within days if his arrival back in New Zealand he was off again with the Prime Minister to China.
He talked to Agriculture Ministers, agri business executives, officials and farmers on both trips and has concluded that things are not looking too bad.
For a start though, dairy farmers in Europe, China and New Zealand are all in the same boat --- their costs of production are higher than their market returns.
Mr Guy said that European farmers, who increased production last year by over 2%, were paying about five cents a litre more to produce milk than they were receiving n returns.
New Zealand farmers were paying about eight cents more per litre.
In China, it was the same story and there were probably two million dairy farmers who were really struggling.
Despite this, he is optimistic about next year and believes that dairy prices, if not now, will soon be on the way back up.
“In Europe and China, talking to Ministers of various countries I got a pretty good insight into what they are thinking about next season,” he told POLITIK.
“They are thinking an increase (in price) but by how much no-one is quite sure.
“The fundamentals in the world dairy market are very strong but at the moment, we’ve got a supply-demand imbalance.
“I’m an optimist and certainly next year is going to be better than this year.”
If the problem in Europe is increased supply because of the EU intervention price subsidies made worse by the embargo on exports to Russia the challenge in China is ultimately very different.
He said the gradual end of the one-child policy had huge implications for New Zealand.
“The forecasts are that there will be 38 babies born every minute; that’s a New Plymouth a day.
“So when you think about those numbers it is just massive in terms of infant formula.
“These Chinese mums are very active on social media.
“They do a huge amount of research back to the country of origin and they want to know that the infant dairy products they are feeding their babies are very safe and of course, our food standards are very good.
“In fact, the Chinese are very keen to implement our overall structure and regulations that we have.”
But though the outlook is promising, not only are there over 100 countries exporting to China but the country itself is rapidly increasing its own dairy production.
Mr Guy visited one farm that had recently been established with 15,000 dairy heifers from New Zealand.
“they are going to have a gio at producing more dairy – that’s obvious,” he said.
“But the reality is with their growing population they will never be able to feed themselves in dairy.
“So the opportunity for us is to complement their domestic market.
“As they get wealthier they want to consume more protein.
“They want to know it is very safe so we have an opportunity to sell our New Zealand story better – that we are a world leader in food safety standards; our animals are farmed out doors all year round and they are hormone free.”
But what seems to have got the Minister particularly excited was his meeting with Alibaba founder and multi-billionaire, Jack Ma.
Mr Ma had been to New Zealand.
Mr Guy said that what he loved about New Zealand was its blue skies; clean rivers and the animals outdoors and grass fed.
“He said that all of these things were really important for Chinese consumers who are willing to pay a premium for products from New Zealand.”
There are still challenges though.
It is not clear how high milk powder stocks may be in China and it is not clear how much of what is in store may be intended for animal feed.
In Europe though some countries are limiting production, the big producers, Ireland and the Netherlands are still increasing albeit at a slightly lower rate than over recent years.
Nevertheless, the picture painted by the Minister is ultimately an optimistic one.
That he is willing to put his name to it suggests that he and his advisors are convinced that the worst may actually be over.
He is bullish about the outlook for some other agricultural products.
In France, he saw 1.3 million New Zealand Jazz apple trees and believes that once the NZ-EU free trade agreement is completed, it should be possible for New Zealand and those apple growers to work together to provide fresh apple year round.
China is to open up its markets for chilled meat from New Zealand. Again, this will be a premium product attracting higher prices.
But in the here and now he recognises that farmers are facing a tough time.
He says that the $500,000 the Government has committed to help combat depression among rural people will also be used to train bankers to recognise the symptoms of depression so that when they are talking to farmers about their debt --- and there isn’t a dairy farmer in New Zealand who is not losing money this year --- they will be able to alert medical professionals to come and help.
But perhaps the best help the Government can give farmers is the assurance that things are going to get better.
And Mr Guy is certainly keen to do that.