The end of the white gold rush

11:58 am on 16 March 2016

What's this white gold rush?

The white gold rush is shorthand for the boom in dairy exports which has seen New Zealand milk production double over the last two decades, driven by demand principally from China. After years of dairy conversions and intensification, however, the sector is in dire straits, with global prices having plummeted and many farmers deep in debt.

How bad is it?

A Federated Farmers poll last month found that more than one in 10 dairy farmers were facing pressure from banks to service mortgages. Agriculture analyst Peter Fraser has told RNZ as many as one in four dairy farmers could go out of business.

The crucial number for the sector is the forecast farmgate milk price, set by Fonterra, the dominant dairy collective which is co-owned by more than 10,000 New Zealand farmers. A depressed global dairy market - into which 95 percent of Fonterra product is exported - saw the company drop the forecast price last week to $3.90, a return to the lows of 2015, which it had been hoped were fleeting.

$3.90 per what?

Per kilogram of milk solids. Critically, that is well below the estimated $5.25 required to break even. As shareholders, most farmers will also earn a dividend that will bump that price up to the equivalent of about $4.25, but that is still a good way shy of what is required, and threatens hundreds if not thousands of livelihoods.

How far has the price fallen?

It peaked at $8.65 in February 2014, and had for years hovered mostly between mid-$5 and $8 until late 2014, when things started to go seriously downhill.

Why did that happen?

The factors usually cited are sluggish growth in the biggest market, China, which has taken active steps to reduce its reliance on New Zealand dairy imports, as well as the withdrawal from the Russian market and increased supply by subsidised European farmers.

How much worse could it get for NZ dairy farmers?

Reserve Bank Governor Graeme Wheeler recently said the "nastiest" outlook could see farm prices fall by as much as 40 percent, with banks writing off more than $5 billion in loans. The bank puts the current level of debt in the New Zealand dairy sector at $38b.

How much is that per dairy cow?

Is there any help out there for indebted farmers?

Fonterra last year set up a scheme allowing farmer shareholders to apply for interest-free loans pegged to milk solids produced. The Reserve Bank last week cut official interest rates to a record low of 2.25 percent, in large part to ease dairy sector pain.

But what about the government?

It's "Bill".


And the opposition parties?

Labour say more needs to be done, and have backed a summit; the Greens are pro-summit, too. Critics say they're just talking about talking. The New Zealand First Party thinks Fonterra and Federated Farmers need complete restructures.

Just how dependent is New Zealand on the dairy sector?

Dairy accounts for about 20 percent of New Zealand exports and an estimated 37,000 jobs. Fonterra alone contributes about 7 percent of national GDP.

Bill "Bull" English has characterised the dairy industry as the All Blacks of the New Zealand economy.

Shouldn't we be careering headlong into recession then?

Not quite. Non-dairy farming remains in good shape, the construction sector is buoyant, particularly in Christchurch and Auckland. And international tourism, which recently overtook dairy as NZ's biggest export earner, continues to grow.

What sort of shape is Fonterra in?

Is that meant to be a Theo Spierings cow?


Isn't it kind of pathetic to resort to lazy stereotypes and put clogs on the cow because the Fonterra CEO is Dutch?

Ja, het spijt me. But on the other hand: a cow with clogs!

Would a shrinking of the dairy sector be good for the environment?

Probably. Agriculture accounts for almost half of NZ's greenhouse gas emissions, and the methane burped and belched from cows is a huge problem.

Tourism Export Council CEO Lesley Immink this week called for a five-year moratorium on irrigation schemes, which are backed by the government and lead to intensified farming that can pollute rivers. According to RNZ, "Mrs Immink said it was a matter of when, not if, a visiting family got sick from polluted waterways, which would have international ramifications for the tourism sector".

Sum it up in 25 words.

The "Saudi Arabia of milk" is in the doldrums, thanks to a global slump. The days of plenty appear over, leaving farmers on the brink.

And five?

White gold? Black and blue.

Toby Toby stamp

* This is a weekly column published every Wednesday, by graphic artist Toby Morris and journalist Toby Manhire.