Iron ore

Is Dairy Rooted?

The boom in the New Zealand economy has been led by massive dairy intensification. It is also the driver behind silly socialist projects like the Ruataniwha Water Storage Scheme where townie councillors have bought into government and Federated Farmers spin about the future being dairy and they are promoting economic models based on boom years that are unsustainable in bust years. Even so the proposals can’t work without massive subsidies or government grants even in boom years.

Yet no one has really stopped to question what the real long-term price of milk solids is, and if it is a sustainable long-term path to prosperity for New Zealand.

After last years boom prices there was not much consideration to what was going on world-wide, especially with the Chinese Market.

In the Sydney Morning Herald, their business editor wrote a good article comparing dairy in New Zealand to iron ore in Australia. I slammed it at the time, but have had a bit more of a think about it, plus some additional research over the holiday break.

Uppity Kiwis feeling boastful about their dollar approaching parity with the mighty Aussie might do well to stick to rugby for their kicks. Their China-driven boom is coming to an end as quickly as Australia’s. And they have less to fall back on when it does.

Meanwhile, reports of Gina Rinehart going long on dairy farms could prove as reliable a warning as many another billionaire diversifying outside his or her area of expertise.

The New Zealand economy’s resurgence has owed much to China’s demand for milk products and getting in early for a comprehensive free trade agreement with the Middle Kingdom.

Trouble is, China has been busily investing and encouraging others to invest in increased and globally diversified milking. Just as iron ore miners have ramped up production both from existing provinces and new projects from Africa to Mongolia, New Zealand’s farmers are facing increased competition from South America to Russia and all points in between, including Australia.

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