New Zealand economy gets big boost from rising dairy price

Nov 8, 2009, 22:28 GMT

Wellington - Soaring international milk powder prices are giving the New Zealand economy a multi-million dollar boost as it struggles out of recession, the country's biggest exporter announced Monday.

The Fonterra Co-operative Group, the world's biggest exporter of dairy products, told its nearly 11,000 farmer-shareholders that it would pay them an average 114,000 New Zealand dollars (83,200 US dollars) more for their milk this season - an increase of nearly 20 per cent on its previous forecast.

Fonterra is New Zealand's biggest single trader and accounts for about 20 per cent of the country's total export earnings, making its milk pay out enormously important to the economy.

The company's initial forecast for the current season ending May 31 was 4.55 New Zealand dollars per kilogram of milk solids. It raised this to 5.10 New Zealand dollars in September and now predicts 6.05 New Zealand dollars.

Analysts said this would inject about 1.2 billion New Zealand dollars into the national economy, which remains fragile after nearly two years of recession.

Lachlan McKenzie, chairman of the Federated Farmers' dairy section, said farmers who faced a fiscal-year loss at the initial forecast of 4.55 New Zealand dollars were now guaranteed to turn a profit.

Fonterra chief executive Andrew Ferrier said the forecast increase followed four consecutive price rises at the company's monthly global auctions, which have hiked the international price of whole-milk powder by 88 per cent.

Chairman Sir Henry van der Heyden warned that the size of the forecast rise showed how volatile the international dairy market was.

He said there was a risk that rapidly rising prices would tempt other countries to step up their milk production, exceeding international demand and prompting a collapse of prices as had happened in 2007.

'While it's too early to crack open that celebratory carton of milk,' McKenzie said, 'Federated Farmers is pretty certain this figure has a solid feel to it.'