Podcast Center
Video Center
Webcasts
Resource Center
Events
By 
August 19, 2015 at 06:23 AM
New Zealand has been humming along, with last year’s economic growth coming in at 3.3%. The government has predicted this year’s growth to top 3% again, although there are some downward pressures that arose since the forecast originally appeared in May that could hinder the target.
One of the problems is the dairy sector, which is the largest of New Zealand’s exports. Investors can thank China for at least part of the problem, since China took great pains to begin building up a stockpile of milk powder at the very time that its economy began to slow. As a result China has bought considerably less dairy from New Zealand—69% less, in fact, than in 2014.
New Zealand’s dairy products satisfy 17% of the global dairy market, and its whole milk powder fills two thirds of world demand. But prices on dairy have fallen so much that not only are its farmers expected to lose money this year, the country’s currency has fallen substantially—it’s become the second-worst performing major currency so far this year. That’s led the central bank to cut interest rates twice in a six-week period, and could lead to more pressure on the kiwi dollar.
To add insult to injury, Russia’s ban on imports of foreign dairy products—its response to sanctions imposed over its actions in Ukraine—has also cost New Zealand business, since the country was a major customer. Both couldn’t come at a worse time, since dairy farmers—not just in New Zealand, but in the U.S. and Europe as well—had been increasing yields after dairy prices doubled between 2009 and 2013. Just as production reached record highs, the bottom fell out of the market.
New Zealand has been a force to reckon with globally in the dairy sector, but it’s been trying to win concessions in the negotiations for the Trans-Pacific Partnership, held in Hawaii in late July. Its dairy sector amounts to 30% of the market share among the 12 nations that make up the TPP network, and it’s determined to stand firm. As a result, it’s been one of the holdups in pushing through the TPP.
New Zealand and neighbor Australia have been pushing for a greater share of U.S., Canadian and Japanese markets, while milk producers in the U.S. have been considering how they might expand their own market share in Japan and Canada to try to make up for any inroads New Zealand might make on their turf. The New Zealand agricultural trade envoy had said in reports during the negotiations, held in Hawaii, that the U.S., Canada and Japan had to give ground in the dairy sector before talks could further advance.
But New Zealand is not just about dairy, and if there’s a bright spot it’s construction. Rebuilding in the wake of earthquakes that have struck over the past few years has kept the sector busy, and in Auckland and surrounding areas, housing goes at a premium, when buyers can find any—in July it was up 18.8% compared to July 2014. In fact, house prices are increasing at the fastest pace seen in seven years, causing the Reserve Bank of New Zealand to impose controls on loans for real estate investors as well as to boost deposits required for such loans.
