Dairy pushes terms of trade to 40-yr high

JAMES WEIR
Last updated 11:43 03/03/2014

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Booming world dairy prices and a rebound in production volumes are pushing New Zealand's terms of trade to their highest levels since 1973.

Dairy export values jumped 27 per cent in the December quarter, according to Statistics New Zealand figures released today.

Dairy export volumes, after adjusting for seasonal patterns, were up 23 per cent while actual prices dipped 1.1 per cent in the quarter, reflecting the strong New Zealand dollar.

Last week, Fonterra announced a 35-cent increase in its farm-gate milk price forecast to $8.65 a kilogram of milk solids, reflecting dairy price gains over the last few months. Prices are high because of strong demand, especially from China.

Total export volumes are at their highest levels since the set of figures began in 1990, reflecting the higher dairy sales volumes in the December quarter, Statistics NZ said.

Total export volumes rose 9.7 per cent in the December 2013 quarter while total export prices fell 0.5 per cent. Both movements were strongly influenced by dairy, which accounted for 39 per cent of the value of goods exported in the December quarter - twice as much as meat and forestry combined.

Import prices fell 2.8 per cent in the December 2013 quarter. The fall was broadly based, due to the stronger New Zealand dollar.

The merchandise terms of trade rose 2.3 per cent, its fourth consecutive rise.

It is at its highest level since the December 1973 quarter and just 3.5 per cent below the all-time peak in the June 1973 quarter.

The terms of trade is a measure of the buying power of New Zealand's exports abroad. An increase in the terms of trade means New Zealand can buy more imports for the same amount of exports.

Total import volumes were unchanged, with a fall in capital goods offset by rises in the other categories.

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- Fairfax Media

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