Fonterra’s exit from Australia ‘a major event’
Fonterra’s impending exit from the Australian dairy industry is a major event but the story doesn’t change too much for farmers.
Chinese imports could be down 50% this year than last. There may be “regulatory shenanigans” and “we will find out the true value of partnerships with Chinese buyers”, warned Moynihan in her presentation to the Farmers Forum in Kerikeri.
In China the situation changed “dramatically” from product shortage in late 2013 to reports this year of product being dumped. Processors there are not necessarily collecting milk from smallholder farmers who do not have contracts. There is plenty of domestic milk and import stocks.
“This was quite a change in 18 months; it illustrates the extreme of how that changed. That adjustment is still happening in China. We still think there will be growth in consumption but nowhere near the levels seen in the past.
“The market is maturing and the new investment in farms in China is coming on line which is improving the quality and the availability of raw milk in China.”
High raw milk prices, flagging international prices and a growing industry could play out in a number of scenarios in China. Fall milk prices could push smaller Chinese farmers out, as could processors holding volume levels. Or the Government may subsidise to keep farmers in rural areas. Imports may go to a lower level. Some combination of the four options is likely.
“We think one major scenario will be significantly less imports into China into 2015 [than during] 2014,” Moynihan said. “We expect to see exports down by about 50% versus last year. So people who are expecting a very sharp increase in pricing because China is going to come back into the market – we don’t think so.”
China’s consumption will grow long term but it will not be the primary and almost sole driver of trade growth as seen in the last 4-5 years. Growth will be broader based in regions like South East Asia, North Africa and other African regions.
Moynihan earlier said supply is often discussed but consumption less so. Dairy consumption did play out as expected in 2014. High milk prices were passed on to consumers at the same time as economic growth slowed. Globally consumption grew 0.6% as compared to 1.8-2.4% in the past decade or two.
