Fonterra's Canterbury operations manager Richard Gray
(left) and director logistics network Robert Spurway stand
in front of the world's largest milk powder drier at the
company's Darfield site. Photo by Fonterra.
New Zealand's terms of trade are expected to hit a
40-year high later this year thanks to surging world dairy
Terms of trade increased 4.9% in the three months ended June,
while export prices increased 3.4% and import prices fell
With more of the recent dairy price surge to come through,
Westpac economist Nathan Penny expected the terms of trade to
reach a 40-year high in the September quarter and to remain
high into 2014.
Higher dairy prices drove the increase in export prices over
the June quarter, with the increase largely reflecting the
effects of the summer drought, as supply concerns drove a
surge in prices over March and April, ASB economist Christina
Although improved weather conditions had seen an easing in
supply concerns and, in turn, global dairy prices more
recently, prices remained very high.
The effects of the recent Fonterra contamination scare on
global dairy demand and prices appeared limited, Ms Leung
The terms of trade represented New Zealand's purchasing power
with the rest of the world, so the stronger-than-expected
result boded well for national income growth, she said.
The recent upward revision by Fonterra to its milk price
payout, to $7.80 a kg of milk solids, illustrated the income
boost from strong global dairy prices, with the revision
estimated to boost on-farm revenue by $450 million.
The effects of the summer drought were also reflected in
lower dairy and meat export volumes, as farmers reduced milk
production and brought forward livestock slaughter.
Beyond the short-term disruptions of the drought, the
medium-term outlook for export growth was ''mildly positive''
as global demand continued to grow.
The fall in import prices was largely driven by lower prices
for petroleum and petroleum product prices, she said.
The world's largest milk powder drier at Fonterra's Darfield
site, in Canterbury, has produced its first batches of whole
The drier has the capacity to produce up to 30 metric tonnes
of whole milk powder an hour, and 700 metric tonnes per day,
or the equivalent of 45 shipping containers.
The first production run marked the completion of Fonterra's
$500 million development of its Darfield site over the past