China takes over as New Zealand's top dairy market

Jun 16, 2010, 7:30 GMT

Wellington - Strong demand in China for milk powder in the wake of the deadly baby food contamination scandal of 2008 has created a boom for New Zealand, the world's biggest exporter of dairy products.

New Zealand sold dairy goods to 151 countries last year, but China was the biggest customer by far, paying out 1.33 billion New Zealand dollars (900 million US dollars), the Ministry of Agriculture and Forestry said this week.

It was the first year China had headed the list of New Zealand's dairy buyers although it overtook sales to New Zealand's traditionally large markets in the European Union, headed by its former colonial power, Britain, for the first time in 2008.

China now spends more than twice as much on imports of New Zealand dairy products as the 27 members of the European Union combined, which bought 515 million New Zealand dollars last year.

The EU was the fifth-biggest market behind the United States (1 billion New Zealand dollars), Japan (592 million New Zealand dollars) and Australia (531 million New Zealand dollars), the ministry said in its annual inventory of the nation's farming industry.

The ministry said New Zealand's total agricultural and forestry exports to China rose 49 per cent last year to 2.19 billion New Zealand dollars, driven mainly by milk powder (610 million New Zealand dollars) and lumber.

The report noted that Chinese demand for New Zealand products soared with the drop in consumer confidence in domestic milk products after the widespread contamination of infant milk powder with the industrial chemical melamine, which killed six babies and put hundreds of thousands more in hospital.

It predicted the boom would continue with Chinese consumption continuing to rise and New Zealand production jumping rapidly as farmers recover from a drought that limited a predicted rise in output in the past dairy season, which ended May 31.

Commentators questioned the ministry's bullish forecasts of a 14-per-cent increase in milk production subject to favourable climatic conditions this season and a 58-per-cent rise in total dairy exports to 15.7 billion New Zealand dollars by 2013-14.

A spokesman for the Fonterra Co-operative Group Ltd, the world's biggest single trader in dairy products, said it could not confirm the ministry's figures because there were many variables, including exchange rates, commodity prices and production levels.

The ministry's director general, Murray Sherwin, acknowledged that dairy product prices had become volatile over the past few years and said rapid price shifts, up or down, could not be ruled out.

He also cautioned that New Zealand should avoid becoming too reliant on one country as a market for its goods.