Friday, March 07, 2014

Is milk white gold?

There is currently a supermarket war going on using milk as a loss leader. Farmers have been reassured that it will not affect the price that they are paid, but some are concerned about the treatment of liquid milk as a commodity. With the impending lifting of quotas, many EU farmers, not least in the Netherlands, are planning expansion. But in a world that could be awash with milk, despite increasing demand in China, milk could turn out to be 'white gold' but fool's good.

Moreover, any country expanding its production will be up against New Zealand which has an ideal climate for dairy production and years of accumulated expertise in production and marketing. But is New Zealand really the Saudi Arabia of milk?

A recent report in the Financial Times struck a note of caution: White Gold.

The Pink 'Un noted that since 1980, the dairy herd has more than doubled to 6.5m cows while the number of sheep has halved. At least 300,000 hectares of land has been transferred to dairy use from other types of farming and forestry over the past decade, causing a jump in agricultural land prices. The dairy industry is driving the boom in capital investment with NZ$1bn dairy plants under construction along with other spin-off infrastructure projects.

But there are risks in being so dependent on a single sector which now accounts for almost a third of total exports, particularly when it is a commodity. It makes New Zealand look like a modern version of a company town. Some see parallels with Ireland before the financial crash with an economy based on debt and credit, low savings rates and current account deficits. Irish dairy farmers prospered under the CAP, some of them building new mansions with porticos. They survived the crash with the CAP providing a safety net which Kiwi farmers do not have.

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