New Zealand could see billions of dollars lost to its economy, commentators warned Wednesday, after dairy prices plunged to their lowest point since August 2009.
New Zealand's key dairy export, whole milk powder, fell by 7.1 percent in the fortnightly Fonterra-run GlobalDairyTrade auction to 2,229 U.S. dollars a tonne, dragging down the average dairy commodity price by 1.1 percent to 2,513 U.S. dollars a tonne.
Analysts said that dairy cooperative Fonterra, which is due to review its payout to farmers next week, would have little choice but to lower the current forecast of 5.30 NZ dollars (4.12 U.S. dollars) per kilogram of milk solids.
Susan Kilsby, of agricultural analysts AgriHQ, estimated the price paid to farmers at closer to 4.25 NZ dollars (3.30 U.S. dollars) per kg.
"Not only were the results poor at the auction, but the price outlook has also softened," Kilsby said in a statement.
Whole milk powder futures contracts on the New Zealand stock exchange had fallen about 20 percent in the past fortnight.
"The prices of the contracts which are scheduled to expire in April to June 2015 dropped the most in value, indicating a further slowing in the price recovery," she said.
"Milk production remains strong across the globe and this is not helping prices to recover."
October data showed milk solids production was up 5.4 percent compared with the October 2013 production, she said.
"That is an extra 143,000 tonnes, which is a lot of extra milk to sell, particularly when the markets are as weak as they are at present."
Fonterra has previously said the whole milk powder price needs to rise to about 3,500 U.S. dollars by March next year if it is to maintain its forecast payout to farmers.
Opposition parties warned that if the payout fell below 4.80 NZ dollars (3.73 U.S. dollars) per kg of milk solids, the country's pillar dairy farming sector could lose more than 2 billion NZ dollars (1.55 billion U.S. dollars) in total.
The opposition New Zealand First party said that with the overvalued New Zealand dollar and plunging dairy prices, only low international fuel prices were preventing economic catastrophe.
"Given there's a direct correlation between the price of crude oil and fertilizer, let alone fuel, all it takes is events in the Middle East to deteriorate before this house of cards implodes," New Zealand First leader Winston Peters said in a statement.
The main opposition Labour Party said the government's obsession with promoting the dairy industry was beginning to backfire and hurt all New Zealanders.
"Dairy has a strong part to play in the New Zealand economy, but with milk prices almost halving this year it shows we can't treat it as our only cash cow," Labour economic development spokesperson David Clark said in a statement.