Milk powder booms as China now top market

16:00, Jan 31 2014

China is now New Zealand's top export market for a full calendar year for the first time, with exports worth $10 billion, up 45 per cent from the previous year, as milk powder sales race ahead.

In the 2013 calendar year, almost half, 46 per cent, of New Zealand's milk powder exports went to China.

"China is leading the way in demand for New Zealand exports," ASB Bank economists said.

Statistics NZ figures out yesterday showed New Zealand ran a trade surplus of $523 million in December, as exports to China boomed, especially for milk powder. The December trade surplus was in line with market forecasts for about $500m.

New Zealand's strong terms of trade, with booming commodity prices, are a big boost for the overall economy, and also a reason official interest rates will start moving up soon.

World dairy product prices are high and dairy farm production has rebounded strongly from last summer's drought. But forest exports are also growing fast, driven by demand from China.


China is also the biggest source for New Zealand imports, worth $8.2b.

Over the year, New Zealand's exports to former top market, Australia, fell almost 8 per cent or about $775m, as sales of crude oil fell. Annual sales to Australia are back to about $9.1b.

The New Zealand dollar has risen sharply against the Australian currency in the past year, which is making it harder for exports of machinery across the Tasman at the same time as the Australian economy slows down.

The trade figures reinforce the fact that New Zealand dairy farm incomes will be flush this season, with a high payout of $8.30 a kg and an expected 10 per cent lift in production, pointing to total dairy incomes close to $5b this year, ASB said.

The strong dairy exports should see New Zealand move back into an annual trade surplus for the first time in a couple of years. The annual trade deficit was just $259m in 2013, with rapidly rising exports and a rise in imports.

The high dairy prices and a better season are seen as another reason for the Reserve Bank to start lifting official interest rates soon, ASB said.

For December 2013, total exports jumped $658m (16 per cent) compared with the same month last year. Imports were up even more, rising $669m (19 per cent).

The trade surplus of $523m topped off a stellar year for exports, led by milk powder sales to China.

However, some of the 26 per cent lift in dairy exports in the December quarter were because of a rebound in production from last summer's severe drought. But dairy prices have also stayed extremely high during the past year, even long after the drought ended.

Fonterra's botulism alarm in August last year seems to have had little impact on dairy exports.

In US dollar terms, world dairy product prices are up almost 34 per cent in the past year.

But dairy is not the only winner from China.

Forestry product prices in New Zealand are up 13 per cent in US dollar terms in the calendar year, adding another 2 per cent this year, taking the forestry index into record territory, according to ASB. The Chinese demand is being driven by newly built house prices rising at a record pace.

At the same time, Russian exports of timber are drying up, and the better United States housing market is keeping more of their lumber in North America.

The Christchurch rebuild and rising consents for homes in Auckland are also adding to demand for wood here and supporting prices, ASB said.

New Zealand's total exports of logs and wood products jumped 22 per cent in the calendar year.

For the full calendar year, New Zealand's total export goods jumped $2b to $48.1b in total, with most of the increase from milk powder, Statistics NZ industry and labour statistics manager Louise Holmes-Oliver said.

"Almost half of our milk powder exports went to China."

In the year, New Zealand sent $10b worth of goods to China, including $4b of milk powder, a record level.

"China became our top annual export destination in 2013, a spot Australia had held since the year ended September 1989," Holmes-Oliver said.

"For imports, China's been our main partner since December 2011."

Total imports for the December 2013 year were up $1.1b, to $48.3b.


December trade: Exports up 16 per cent to $4.8 billion, led by milk powder Imports up 19 per cent to $4.2 billion

Trade surplus of $523 million, equal to 11 per cent of exports.

2013 full year trade: Exports up 4.4 per cent to $48.1 billion, led by milk powder Imports up 2.4 per cent to $48.3 billion, led by cars, parts and accessories Annual trade deficit: $259 million

Source: Statistics NZ