November 30, 2006

New Zealand dairy suffers as currency advances

New Zealand dairy suffered loss last year, as a rising currency eroded export earnings, crimping spending in an industry that accounts for 18 percent of the nation's overseas sales.

About 70 percent of dairy farms posted losses in the 12 months ended Jun 30, according to a Ministry of Agriculture and Forestry report released Wednesday, Nov 29. Lack of profit has been deterring farmers from buying equipment like tractors and forcing some to quit the industry, said Frank Brenmuhl, chairman of their national lobby group.

A stronger currency implies farmers have not benefited from increased milk production and rising exports, according to the government report. This would have a trickle-down effect for the economy, noted Brenmuhl.

It could lead to a downfall in the country's economic growth by 20 percent from last year according to a central bank forecast.

The currency traded at a daily average of US$ 0.66 last year, 17 percent higher than in the preceding 20 years. In the past three months, it has gained 5.4 percent, the best performance of any major currency tracked by Bloomberg.

Losses at dairy farms ranged from NZ$6,000 (US$4,071) to NZ$30,000 (US$20,337) a year in the North Island's Waikato region, the worst affected, according to the report.

The Auckland-based Fonterra Cooperative Group, the world's largest dairy exporter responded by cutting its payments to farmers. The decreased payout and increased costs for equipment and wages led to the losses, according to Phil Journeaux, a regional policy manager for the ministry.

Exports of dairy products rose 21 percent to NZ$6.1 billion (US$4.13 billion) in the 12 months ended Oct 31, making it the nation's biggest product sent overseas. Total exports rose 10 percent to NZ$40.6 billion (US$27.5 billion).