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New Zealand economy hit by milk price blow

Business Materials 28 January 2009 04:48 (UTC +04:00)

The New Zealand economy, which is in the grip of a recession, suffered a further blow Wednesday with a forecast that will wipe up to 1 billion New Zealand dollars (about 530 million US dollars) off the critical dairy industry's earnings this season, dpa reported.

The Fonterra Co-operative Group, which has huge influence on the economy as the country's biggest single exporter, told its 10,700 farmer-shareholders that the global recession had cut international demand for dairy products and slashed commodity prices.

As a result, it reduced its forecast payment for farmers' milk for the current season for the third time since June. The latest cut of 90 cents brings the expected payment down to 5.10 New Zealand dollars per kilogram of milk solids.

Fonterra had already reduced its original forecast of 7 New Zealand dollars by 40 cents in September and another 60 cents in November, as the global economy worsened and demand waned.

Farmers now face a final payout at least 2.56 New Zealand dollars below the record amount they received for their milk last season, which ended on May 31.

Based on last year's production, analysts said that the forecast means a loss to New Zealand, which has recorded three quarters of negative economic growth, of 900 million to 1 billion New Zealand dollars.

"It's clear now that the financial crisis is hitting the global economy hard, and dairy has been impacted along with most other commodities," Fonterra Chairman Henry van der Heyden.

He said that the European Union's recent move to reinstate subsidies for dairy exports was worsening a situation of rising global supply and falling demand, which was collapsing international prices.

Fonterra chief executive Andrew Ferrier said there was now a "serious imbalance" between supply and demand, and customers were cautious and hesitant.

"It is difficult for our customers to read consumer trends like they used to, and pressures on their own working capital from the financial crisis mean they want to limit the amount of product inventory they are carrying," he said.

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