This time around (again) it was kicked off in the EU when the French government started buying dairy products from their farmers and selling it at a loss in the international market. That mechanism, while providing price support for their farmers and depressing the international market prices through increased supply, at least is allowing the market to operate openly and without direct influence.
It is the follow-up from the US that has that rank stench of market manipulation and bare-faced subsidy. And, as is usual in these arguments the cause might well be the EU but the enemy is “in fact” New Zealand. Why? Because after a major drought last year the production levels in this country have reached the same as four and five years back. Those fluctuations have all reflected directly in our supply to the international market.
New Zealand milk production is forecast to increase 8% in MY 2008/09 compared to the drought affected MY 2007/08. New Zealand dairy export volumes fell 9% during the first seven months of MY 2008/09 compared to the same period last year.
The problem for the US, and the EU come to that, is that NZ dairy farmers get no government support; there are no export tax breaks, there are no production subsidies, there is no government tariff relief on imports such as equipment, fertilizer or fuel. The truth of the matter is that NZ makes the best product, and does so cheaper than most (if not all) other contributors to the international market. That “cheapness” is due to two major factors; NZ ingenuity (the number eight wire factor) and the fact that our climate allows for year-round open grass grazing. What is biting the bum of the US and the EC is that NZ is expanding its market influence into other producing countries; specifically at this time into Uruguay where Fonterra is buying large acreages, providing New Zealand management and training skills, and growing their production as a result.
What is becoming abundantly clear is that “top end” producers – both the US and EC in particular – are ignoring the principles of free and open markets when it suits themselves and insisting that the Rules are applied very strictly to others when they are winning; and that is a hypocrisy that has applied to products as diverse as steel, electronics, agriculture, timber and grains.
There is a very interesting analysis of the EU dairy market – both production and consumption - here and follow the .pdf link at the bottom for the full report showing amongst other things that between 2000 and 2008 one country increased its share of the total import to EU from about 19% to over 37%. No, not NZ but Switzerland. NZ increased from 10% to 13%.
Why do the “Free Trade” negotiations at the WTO keep stalling, as the current Doha round has once again? No, it is not just because of India, China, and Brazil. It is also the US (in particular this time around) trying valiantly to make sure that there are Rules that they can manipulate to protect their own from the fact that internationally they are price uncompetitive.
Oh, and “who” is Fonterra? You want to buy shares in Fonterra?
Come to NZ, buy a dairy farm, sign up as a Fonterra supplier, THEN you can buy your shares – the number of which will be based upon your contracted supply volume…