The grass isn't always greener in New Zealand

As Brexiteers point to the sunlit uplands, they draw attention to the way in which New Zealand agriculture has flourished since the withdrawal of subsidies. A number of caveats are necessary. The original measures were accompanied by a devaluation of the New Zealand dollar and an end to restrictive practices in ports. Even so, some farmers did take a big hit and went out of business.

What strikes me today about the New Zealand economy today is how dependant it is on exports of dairy products and in turn how important the Chinese market is. Admittedly, the share of dairy products in exports peaked a couple of years ago at 35 per cent and has dropped to just under 30 per cent, but that is still a heavy reliance on one set of products. New Zealand does, of course, have an ideal climate for dairying, although there are environmental concerns about levels of water abstraction for irrigation and the pollution resulting from intensive dairy farming: Green image threatened .

The co-operative Fonterra is New Zealand's largest company and the world's biggest dairy exporter. It supplies almost a quarter of New Zealand's exports. China is its biggest customer, consuming a quarter of the milk produced by Fonterra farms.

It will be recalled that in 2008 Sanlu, in which Fonterra held a 45 per cent stake, was involved in a scandal involving infant feeding power which led to the deaths of six babies and left tens of thousands and others in hospital. The Chinese authorities did not hold back and executed two of those involved and jailed others. The scandal helped overseas companies dominate China's powdered milk market. Foreign brands account for about three quarters of powdered milk sales in China - worth $19.7bn a year.

Now Fonterra has lost out in a different way through its minority stake in Chinese infant formula manufacturer Beingmate. It has lost 70 per cent of its market value in three years and has made losses in the last two years, $152.5m in the year ending December 2017. There have been problems with pricing after a clamp down on price fixing, the distribution network and the discovery of counterfeit powder by the Shanghai police which hit revenues.

Farmer members of Fonterra are getting increasingly concerned and urging the co-operative to drop the investment.