China No Longer Just A Commodity Story - Luxon
China remains New Zealand’s biggest market, taking $23 billion of our exports, but it’s no longer a commodity story, says Prime Minister Christopher Luxon.
But he does not see China jumping into the supply equation in globally relevant terms any time soon.
"I have been up there a few times.... China has 20% of the world population and 7% of the world's arable land and 5-6% of the world's fresh water resource but about 50-60% of that is contaminated and can't be used for animal or human consumption."
In the current milk price cycle there are a few factors in play making it longer than they expected. Eighteen months to two years ago they would have said by today things would be okay.
He says in NZ there was $2 deferred payment through into that first year of low milk price so the cashflow into that year was still reasonably strong.
"To a certain degree it hid a market signal that supply globally had to come back.
"Compounding that, EU quotas came off and whether or not EU farmers are making money out of milk now.... For years they had been told how much milk they could use so there is this pent up excitement about having control of their own business.
"Also, oil prices are down and there is a strong correlation between oil prices and other prices.
"What we've seen over the 18 months is a perfect storm of everything that could hide a need to globally reduce supply."
About 735 billion litres are produced annually in the world and NZ produces 20-25 billion litres – about 3% – but we supply about a third of what is traded. When there's surplus supply, that impacts the traded portion of the market.
