New Zealand warns dairy faces 'tough' outlook

[WELLINGTON] New Zealand's finance minister said on Wednesday the country's multi-billion-dollar dairy industry faced a "serious or extreme" scenario as prices tumble, but downplayed the impact on the broader economy and refused help for farmers.

The South Pacific nation is the world's largest dairy exporter but falling prices have hit the sector as rivals, particularly in the European Union, ramp up production.

Finance Minister Bill English said New Zealand dairy needed to return to the efficient practices that had originally made it a world leader.

"Either way, whether we call it serious or extreme, this is an industry that's going to be under pressure," he told Radio New Zealand.

"It's (got) to rediscover it's comparative advantages, which are costs of product, ability to solve problems (and) adaptability."

Mr English's remarks come after Auckland-based Fonterra - the world's largest dairy cooperative - announced it was slashing the amount it pays farmers.

Fonterra said its farmgate price for the 2015/16 season would be NZ$3.90 per kilogram of milk solids, less than half the NZ$8.65 it paid at the height of the dairy boom just two years ago.

New Zealand shipped NZ$11.5 billion (S$10.8 billion) of dairy in 2015, accounting for 17 per cent of total national exports.

But Mr English said the economy was still growing at 2.0-3.0 per cent and could weather a hit from its major export earner.

"The bigger issue here, alongside the distress for the industry, is going to be the impact on the broader economy," he said.

"The indications are it will have some impact, but it won't have as big an impact on the broader economy as it does on the industry itself." He ruled out a government-backed rescue package for dairy farmers, saying "between the industry and the banks they'll be able to find their way through it".

"They've already done a couple of tough seasons, it looks like they got at least one more in front of them," he added.

The opposition Labour Party said the government had let the economy become over-reliant on dairy and had an obligation to help struggling farmers.

"Bill English is acting like a bewildered bystander with no idea what to do," Labour finance spokesman Grant Robertson said.

"He has to take responsibility for downplaying the risk from the global milk glut for two years."

AFP