Moves by Fonterra and the Ministry of Primary Industries
following the agrichemical scare appear to have largely
assured markets that New Zealand dairy products are safe,
Westpac economist Nathan Penny says.
An increase in dairy prices in this week's GlobalDairyTrade
auction followed the recent announcement that small traces of
a nitrate inhibitor, dicyandiamide (DCD), had been discovered
In addition to earlier reassurances that the reported levels
posed no risk to food safety, Fonterra announced before the
latest auction that none of the product available for the
auction was manufactured during the period DCD was detected.
The surge in prices indicated demand for dairy products
remained robust, Mr Penny said.
Overall, prices in the auction rose 2.4% on a trade-weighted
basis, building on the buoyant start to 2013 in the first two
auctions of the year.
The trade-weighted dairy price index had risen in seven of
the last eight auctions. Whole milk powder and anhydrous milk
fat prices led the way, increasing 5.4% and 7.2% respectively
while skim milk powder recorded a more modest 0.5% rise.
The high New Zealand dollar continued to ''take some of the
gloss off'' rising dairy prices, he said.
ANZ's latest Agri Focus report said dairy markets were
expected to continue to strengthen in the first quarter of
the year, driven predominantly by ''the supply side of the
Production of dairy commodities and stock levels had
generally contracted in the northern hemisphere and export
volumes coming out of both the United States and Europe were
now declining. A strong start to the first half of the New
Zealand milk production season had helped fill the gap in
supply left by competitors.
However, production was now well past its seasonal peak and
growth rates relative to the previous season were because of
dry conditions in the North Island.
That was expected to result in a further contraction in
global milk supplies before the seasonal lift in production
in the northern hemisphere in the second quarter.
The flow of product continued to be towards China and total
exports of New Zealand's main dairy products to China had
doubled over the past six months, compared with the same
period a year before.