In conversations he recently had with Fonterra bosses, Key said they expected the milk forecast to remain around $6 per kilogram of milk solids, but there were concerned it could jump next year.
«They are quite worried about the payout really spiking up,» he told Waikato farmers in a speech at the Waikato Federated Farmers building in Hamilton.
New Zealand will feel that lift first because the majority of its dairy product was exported.
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«There’s a lot of different factors going on, but the broad guts of it is that world production is going to be down, New Zealand’s production is going to be down and you could at the end of the season see a real limit in the amount of milk that is available and that could just send milk prices flying up.»
While some may welcome this, most in the dairy industry wanted less volatility in dairy prices, Key said.
A price spike also stifled much needed reform in the European dairy industry.
«The really strong view would be that I think it’s very unlikely you will see a payout under $6/kg MS. The question is how high will it go.»
Key’s personal view was that the New Zealand dollar relative to the American dollar would fall, which would also help with the dairy payout.
While the economic outlook was positive, US president elect Donald Trump would raise interest rates because he was likely to spend money and stimulate the American economy.
«If those interest rates come up a bit, the Kiwi-US rate should come down a wee bit.»
There were three options if Trump pulled out of the TPPA, Key said.
The agreement became parked up until a new president wanted to resurrect it, the remaining countries formed the TPPA without the United States, and thirdly, that Trump re-negotiated the agreement.
Key hoped Trump would change his stance because of his business background and concern that a deal without the United States could put China in a politically advantageous position in all of Asia.
«He’s a business guy and don’t be surprised…if in some point in the future, all of a sudden it’s a good idea.»
Trump’s voters were also opposed to climate change and this would cause issues because the world’s three biggest emitters were China, the United States and India. If the US pulled out of the Paris Climate Agreement, it could put pressure on those other two.
Key said New Zealand farmers had to take it seriously. It led to catastrophic weather patterns and the most exposed industry to this issue was agriculture.
«If anyone understands the impact of bad weather and climate change, it’s farmers. It’s Russian roulette and you can’t afford to take the risk.»
New Zealand could not fix it alone.
Putting agriculture emissions into the Emissions Trading Scheme was simply a tax because currently there was little farmers could do to control animal emissions. Until farmers had tools to curb emissions, they should not come into the scheme, he said.
Source: Stuff
Link: http://www.stuff.co.nz/business/farming/87147186/key-believes-dairy-payout-could-jump-later-this-season
