Listen to The Country online: Labour MP Damien O'Connor on butter prices and Fonterra
He shares his thoughts on the price of butter and whether Fonterra can do anything about bringing it down.
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NZ Herald
39 minutes ago
- NZ Herald
How US tariff hikes could reshape NZ's economic landscape
The suggested reasons have ranged from NZ running a trade surplus with the US (albeit a small one), and our GST rate of 15%. It also has been suggested that our political ties with the US aren't as strong as some others (the FBI opening an office in Wellington may have been too little too late), while we also have a nuclear-free policy. Ultimately, not having a bilateral free trade agreement (while Australia does) may also be a factor. The epilogue to last Friday's announcement is now likely to see some lobbying by our officials (and those of other countries) to get a better deal. This will, though, as we have seen with other agreed deals, have to include something on the other side, as there are no free lunches in Trump's trade offensive. So what happens if NZ is stuck with 15%? Before last week, we were all seemingly comfortable with our lot – a 10% tariff. We export around $9 billion of goods to the US, and duties of around $900 million would be material, but manageable. We are now faced with duties of $1.4b. Some commentators have suggested that this is still 'digestible' in the context of our $400b economy, but the reality is the tariffs will affect an important segment of exporters which have been among our brightest stars recently. Despite challenges, NZ's open economy and potential rate cuts may offer some economic relief. Photo / 123rf With much of the NZ economy stagnant, our agricultural exporters have been flourishing, and not least of which has been the dairy sector amid strong global demand. Fonterra has acknowledged that tariffs will impact sales of dairy ingredients and products in the US, which is its largest single market, accounting for 10-20% of Fonterra's sales. We sell $1 billion a year of dairy product to the US, and that is too much to divert elsewhere. The question then becomes whether Americans will be prepared to pay more for our dairy products, or will the industry have to eat the tariffs? A saving grace is that many of our global export competitors are based in Europe, which is faced with a similar tariff rate. The playing field is not so level for our red meat industry, for which the US is our largest market, with exports of over $2b. Our farmers have benefited from shrinking US herd inventory, strong demand and high prices. Beef & Lamb NZ estimates that tariffs will cost the industry an extra $300m a year. And while competitors in Brazil (at 50%) are facing much higher tariffs than our meat farmers, those in Australia, Argentina, and Uruguay are only having to deal with duties of 10%. This could well put Kiwi meat farmers (which have been used to minimal tariffs), including the likes of Silver Fern Farms and Alliance Group, at a clear competitive disadvantage, with knock-on impacts to margins and/or demand (already down 14% since April). Then there is the wine industry, set to be facing over $100m worth of extra tariffs. The US is our biggest market, with annual wine exports of around $750m. Price points for American consumers have been very sensitive, and $1 or so of duties on a bottle of sav (90% of export volumes) could make all the difference between consumers choosing our wines or something cheaper – either homegrown or from the likes of Australia, Chile or Argentina, for instance, which are dealing with lower tariff rates. A host of other industries are facing similar headwinds, including primary sector machinery (+$600m per year in sales) and seafood (+$300m per year), along with pharmaceuticals. Several other industries, including machinery, seafood, and pharmaceuticals, are also facing significant tariff-related challenges. Photo / Getty Images On that note, our largest listed company, Fisher & Paykel, derives around a quarter of its global revenue from the US and does not have a lot of pricing power with its products. However, it appears that the company is relatively insulated in that the majority of its US sales are supplied from Mexico, which is exempt under the USMCA agreement. That said, this agreement is up for review in 2026. All in all, there are a host of implications from last week's tariff announcement, and none should be treated lightly. Many of our industries that have been outperforming, particularly dairy and meat, will now be faced with competitive headwinds. They will have to decide whether to try to divert their products elsewhere or possibly absorb the effect on their margins, with consequent potential impacts to profitability, employment and investment intentions. This will have knock-on effects on our broader economy. The headwinds will trickle down to affect underlying economic growth, investment, confidence, and employment when we least need it. The Reserve Bank (RBNZ) was already predicting that increased global tariffs were likely to slow global economic growth, and we now have a direct hit on our economy, just as it's crawling out of recession. Estimates were for our economy to grow around 2% next year. That is now looking like a tougher ask. There is the added complication that China, our biggest customer, has yet to ink a trade deal with the US. There are some positive takeaways, though, and it could be worse. Even in the light of last week's announcement, we still have an open economy with free trade with three-quarters of the world, covering products that are regarded as very high quality and are in strong demand. Some traditionally US exports may be diverted elsewhere. There will be a clear economic impact, but one that should compel our own central bank to cut rates when officials meet next month. This would provide support for positivity for domestic borrowers, local businesses and consumers. This is against a backdrop where our inflation rate has already fallen, and the scope exists for Trump's tariffs to put additional pressure on prices in NZ as products destined for the US are shipped here at lower prices. From an equity market perspective, our biggest company stands fairly insulated, as are many of our other big blue chips. Overall, global equity market confidence has also remained strong, despite the macroeconomic uncertainties of recent months, some of which have been resolved (the US has agreed trade deals with Britain, Japan, Europe, and several Asian countries, including South Korea). The equity markets have had a lot thrown at them in the past months, but have been resilient – the world's biggest stock market, the S&P500, is trading around record highs. Ultimately, stock markets are forward-looking and are sending positive messages, as are corporates with the earnings season in the US and Europe under way. For a world that has seen plenty of crises in recent years, are we just possibly looking at another shock that will play out better than feared?
Otago Daily Times
3 hours ago
- Otago Daily Times
Butter price drops 3.8% in global dairy trade auction
New Zealand's shopping public will be relieved soaring butter prices had some of their steam removed at Fonterra's global dairy trade (GDT) auction. An overall back-to-back rise will be music to dairy farmers' ears, but family shoppers will be honing in on butter prices dropping 3.8% to $12,220 a tonne. Overall prices increased marginally 0.7% for about 37,000 tonnes of dairy products sold overnight on Tuesday, including a 2.1% gain for the main staple of whole milk powder to nearly $6800. The average price across the range was nearly $7200 a tonne, up on a 1.1% gain at the last auction on July 15. Record butter prices have raised the ire of family shoppers, resulting in Fonterra chief executive Miles Hurrell stepping in to explain they had increased about 50% over the past year because of high global dairy prices. A GDT drop will increase expectations for this to show up in the domestic marketplace. However, the Fonterra leader indicated high prices for a butter block could stick around for longer as strong demand was still being seen internationally, particularly in China and Asia. Buttermilk powder fell 2% to $5166, while cheddar slipped 0.6% to $7750 and mozzarella 0.1% to $7945. On top of the advance for whole milk powder, anhydrous milk fat increased 1.2% to $11,995 and skim milk powder was up 0.4% to $4751. No lactose was offered. The result follows four consecutive auctions in negative territory, including a 4.1% overall drop in early July.
Otago Daily Times
12 hours ago
- Otago Daily Times
Minister bemoans 'glass half-empty' attitude to unemployment
The finance minister is bemoaning those who take a glass-half-empty view of the unemployment figures, saying they were still better than forecast. The unemployment rate has risen to 5.2% in the three months ended June, up from 5.1% in the previous quarter. Unemployment rate at highest level since 2020 Stats NZ figures show unemployment has risen 1.9 percentage points since the June 2022 quarter. Annual wage growth has slowed to 2.4%, compared to 4.3% in the June 2024 quarter. The economy shed about 2000 jobs during the quarter and 16,000 jobs over the past 12 months. There was also an increase in the number of people aged 15 to 24 in education, which Stats NZ said could be due to the current labour market conditions. Speaking to the figures, Nicola Willis said the "positive news" was a lower rate of unemployment than what was expected. "Some New Zealanders, particularly in the commentariat, have got themselves into the habit of what I call glass half empty economics," she said. "Today, on the plain facts of the data, is a lower unemployment rate than was being forecast by Treasury at the Budget, that was being forecast by commercial banks, that was being forecast prior to the election." Willis said the 16,000 people who had lost their jobs "shouldn't take it personally" and blamed the previous government. "What we have inherited is the horrible human aftershock of poor economic management. "What happens when you let interest rates and inflation get out of control is that it strangles an economy and it strangles job creation." She said there were promising signs in the agriculture and tech sectors, and construction would bounce back once the government's infrastructure projects got underway. Labour leader Chris Hipkins said it was the government's fault for letting construction jobs fall in the first place. "The current government got elected on a platform that they were going to fix the economy, and clearly they've made things significantly worse." Hipkins said there were 18,000 fewer people working in building and construction than there were at the time of the 2023 election. "When thousands of people are employed building new state houses, and you stop building state houses, is it any surprise that the number of people working in building and construction goes down?" Willis rejected that, saying the government was continuing to build state and social housing. The Green Party said the government was forcing people further into hardship and poverty, and then punishing them with benefit sanctions. "Increasing unemployment to tackle high inflation is a political choice not new to National governments, but this one has shown little concern at throwing tens of thousands of people out of work," Greens' employment and social development spokesperson Ricardo Menéndez March said. "People want to work and there are masses of important projects for people to work on - housing, climate protection, nature regeneration and others. "The main barrier to people finding work is this government." The tariffs imposed by the United States were likely to have an effect on the economy, Willis said, but Treasury was still forecasting unemployment to fall in the latter part of the year.
