By Bernard Hickey
Prime Minister John Key has downplayed the wider economic impact of the 15% fall in whole milk powder prices since the beginning of 2016, saying it was linked to lower oil prices that would benefit consumers and banks had so far been responsible in supporting farmers.
Whole milk powder prices fell 10.4% at last night’s Globaldairytrade auction, extending their fall since the first auction of 2016 to 15.3%. Fonterra cut its payout by 45c/kg to NZ$4.15/kg last week and economists are looking at revising their forecasts for 2016/17 down closer to NZ$5/kg. This would imply a third consecutive year of payouts substantially below the NZ$5.40/kg seen as the average break-even level.
“What is clear is that global commodity prices are falling,” Key told reporters this morning when asked whether he was more worried about the economic outlook.
“The fall in dairy prices overnight is somewhat related to the fall in oil prices. From New Zealand’s point of view, actually that fall in oil prices is quite a good thing for consumers because they’ll be paying less at the pump,” he said.
“But the practicality is that a lot of countries that buy our dairy products are reliant on oil income and that’s what’s having an impact.”
Key said the Government was doing everything it could to help dairy farmers “and we hope the banks continue to work alongside them.”
“They’ve been pretty responsible so far. It certainly looks like a challenging year for dairy farmers,” he said.
Key said he had not had personally had discussions with banks about their continued support for farmers.
“To this point they’ve largely been working constructively with dairy farmers, but they’re working with them and they’ve got their own balance sheets,” he said.
Reserve Bank help?
Asked if the Reserve Bank should do more to help farmer, he said: “The Reserve Bank Governor is conscious of it, but there’s a limit practically what he can do. Let’s see how things play out.”
Economists from ASB, Westpac, HSBC and First NZ have called on the Reserve Bank to cut the Official Cash Rate by a further 50 basis points to 2.0% this year to offset the impact of a slowing global economy and lift inflation back into its target band. Key was speaking before Governor Graeme Wheeler’s speech and jobs figures showing 1.3% jobs growth in 2015 and an unemployment rate of 5.3% in the December quarter.
Elsewhere, Key said he would now attend Waitangi Day celebrations after receiving a formal invitation from the trustees governing the ceremony. He had said yesterday would not attend if he was not invited, given a local iwi voted to block him. As many as 6,000 anti-TPP protestors are expected at the weekend event in Northland, while a TPP signing ceremony in Auckland tomorrow is expected to face heated protest.
Asked why the Government had not tried to negotiate a TPP exemption for foreign land sales, as achieved by Australia and demanded by Labour, he said:
“We don’t need to do that. Exemptions on foreign land sales don’t work. Australia has proven that ineffective. There are plenty of other mechanisms by which you can control the amount of foreign ownership of land, including very significant property taxes, and there’s nothing in TPP that prevents that.”
Asked if the Government would need to use such taxes, he said: “I don’t think so, but we’ve always got that option.”