According to a report out yesterday, the New Zealand dairy industry is at risk of having up to N.Z.$2 billion or more wiped off its value, or about 2.0 to 2.5% of New Zealand’s G.D.P. Dairy was supposed to be the main plank of New Zealand economic policy under the National-led Government of Prime Minister John Key. It is true that thousands of jobs have been created. It is true that investment in irrigation has exploded and that nations all over the world are interested in how New Zealand runs its dairy industry.
But this has come at a steep price. And now, what might be a pin prick has gone into the bubble in the form of two falls in dairy product prices since the start of the year. And worse still, with a multi-pronged economic downturn starting to hit in numerous locations around the world, this could possibly be just the start. The Chinese market for New Zealand dairy has survived botulism scares, concerns over milk powder but it is having trouble with a slowing Chinese economy caused by reduced demand for consumer goods across the board, as well as housing.
It is not just the Chinese market that is causing problems. The ongoing strife in the Middle East, stubbornly high unemployment in the United States and a migrant crisis that might be about to explode in Europe have put immense pressure on the traditional powerhouses of the world economy. In the Middle East countries that normally import significant quantities of New Zealand dairy and meat are struggling to find the money with the collapse of the oil prices – down to $28 a barrel. In the United States, the fear of another collapse caused by the excesses of Wall Street are beginning to stir once more – 7 years after the worst of the previous collapse, it looks like the U.S. has not learnt a damn thing, even though President Obama passed legislation to prevent another 2008 type meltdown. And finally there is the migrant crisis in Europe. Nations that had growing economies such as Germany, now find themselves facing much bigger economic problems and a really nasty cocktail of social problems to follow if the economic issues that hundreds of thousands of refugees bring with them cannot be fixed.
And closer to home, the failure of National, like Labour before it to invest more in niche businesses and non-farming related industries, means New Zealand is as perilously close as it has ever been to a basket about to break with too many eggs in it.
And on top of this, there is the environmental cost of excessive dairying, which I have blogged about before. But there is really a lot to be said for good fresh water quality, healthy fresh water ecosystems and aquatic species. The green wash that spews forth from politicians unfortunately does not match the facts on the ground about the declining number of water ways that could be swum in and the increase in toxic algae blooms. It is true that many farmers have made significant efforts to clean their properties up, taking steps such as planting natives plants along waterways, fencing those waterways off and using Overseer software to determine the necessary fertilizer inputs for growing feed. They are the ones to be commended.
I guess maybe the dairy bubble is going to burst after all. Is that the legacy Prime Minister John Key wanted? I doubted, but whether he likes it or not, it might be the one he gets.