Dairy prices are at their lowest level in five years, down almost 50 percent since February.
It comes after last week’s 7 percent price slump at the latest global auction and economists are now warning the final payout to farmers could fall below $5 per kilogram of milk solids.
Despite the drop, however, ANZ chief economist Cameron Bagrie says he doesn’t expect to see a change in fiscal policy.
«I don’t think you’ll see a material change in fiscal settings from year to year based on what the economy is going to be doing over 6 to 12 months,» says Mr Bagrie.
«Yes it does look on the face of it, if the economy’s a little bit weak over the next 12 months and that maybe those surplus projections are going to look a little bit optimistic [but] if you’re looking at setting fiscal policy, you’re more concerned with the trend rate of growth – where we’re going to sit on average for the next three to four years because you don’t want to be ducking and diving in regards to changing fiscal policy settings from year to year,» he says.
«At the moment we still think the trend growth rate for this economy – that’s where we’re going to average growth-wise – is somewhere in the turn of 2.75, 3 percent. We’re going to wobble around that, we’re going to have a good year, we’re going to have a bad year, the coming 12 months have a few risks on the negative side of the ledger surrounding that, but broadly speaking I still think those fiscal projections for three to four years out are broadly achievable.»
Mr Bagrie says the impact on the price drop on the economy is likely to be around 1.5 to 2 percent of GDP, something that is substantial, but it’s not what you call terminal.
He says that estimation depends on the dairy payout over 2015/2016.
«Your cash flow’s going to look a little bit skinny over the coming season so the chequebook’s going to get put away but the critical thing for the dairy sector is going to be what the dairy payout looks like in 2015/2016 and this is where we need to see those milk powder prices start to pick up over the coming three to six months. If we don’t see that lift, then that economic impact in 2015 is going to be far more substantial.»
Source: 3News
