Bill English says China is sitting on “mountains” of excess dairy product, part of a global glut, but he remains confident prices will recover this year.
Dairy prices hit a six year low in July amid global oversupply, sending the kiwi dollar plunging to the lowest level in six years against the US dollar.
The Finance Minister, fresh from a week long trip to China, New Zealand’s largest export market, said that there was a picture of an international glut of dairy products which would keep prices lower for some months to come.
In recent weeks the US Department of Agriculture had highlighted an increase in stocks of dairy prices being stored in China.
“It appears there’s been almost literally a mountain of milk powder in warehouses around China, more than people thought so it might take a bit longer to work through,” English said.
“The way it’s been described to me, there’s been a perfect storm of excess milk supply, influenced by events in Russia, Europe, in China, in New Zealand, Australia and that’s led to these prices which I think everyone regards, everyone believes are too low for the health of the dairy industry, whether it’s here, in China or in Europe, but it is going to take some time for the prices to pick up.”
English remained confident that there would be a recovery in dairy prices some time in 2015.
“I don’t think there’s much doubt that they’re going to pick up, it’s just a matter of when and how fast.”
Estimates ranged from picking up in a few months to remaining flat until Christmas, English said.
“I haven’t seen any estimate that it would take years to clear up.”
Despite the fall in prices English said there were no plans for the Government to provide direct financial support for farmers, or active steps to diversify the economy, preferring to leave this to the market.
“The market’s sending some pretty strong signals. It would be hard for the government to do much better I would have thought,” English said.
“When you get high price products it’s not surprising that people produce a few more of those products but I think the dairy industry’s been pretty realistic that the very high prices that they were getting weren’t going to last.”
Labour finance spokesman Grant Robertson said English’s stance was “recklessly complacent” and steps should be taken to reduce the economy’s reliance on dairy.
“The Government’s had six and a half years to diversify the economy and they’ve failed to do it. They were warned that there would be a global dairy glut at least 18 months ago and they failed to respond to that,” Robertson said.
“This is not just about the farmers themselves who are doing it tough, it’s about the regional towns and communities around those farmers who are also looking at billions of dollars gone from their economy.”