Mixed fortunes for our big two
It could be the tale of two regions.
As the fate of the Tiwai Point aluminium smelter hangs in the balance, the region is buoyed as forecast dairy prices continue to rise. Both are major commodity producers and generate millions of dollars for the Southland economy.
But if the smelter were to close, the dairy industry would not fill the gap, says the Southland Chamber of Commerce boss.
Earlier this week Westpac reported a more than 7 per cent increase in world commodity prices in March, almost entirely due to a 16 per cent increase in dairy product prices.
Aluminium prices fell 7 per cent for the month, the report says.
News this week of continuing problems with negotiations between the smelter owners and Meridian Energy has many worried for the future of the plant and the thousands of jobs directly and indirectly linked with it.
The Invercargill City Council will hold an urgent meeting tomorrow to discuss the situation.
It comes after the Government ruled out stepping in to save the smelter and the smelter's owner walked away from talks with the Government during the weekend.
Invercargill Mayor Tim Shadbolt said the city council could help look for alternative owners and options for diversifying the economy so the region was not so reliant on the smelter.
"This is a wake-up call that the smelter will close; one day the smelter will close, so let's start preparing for it now," he said.
Mr Shadbolt said Chinese government officials had shown interest in the smelter following his visit last year but no potential buyers were lined up.
Engineering, Printing and Manufacturing Union Southland organiser Trevor Hobbs said the smelter was dealing with several issues, including low metal prices, a high exchange rate, and high electricity prices, and anyone that bought the smelter would face the same problem.
The Government needed to step in, he said.
"It's New Zealand working class families that are being destroyed," he said.
But while Tiwai workers are worried for their futures, the region's dairy industry continues to rise.
Fonterra's prices on the GlobalDairyTrade auction jumped almost 15 per cent on Tuesday night, prompting Westpac to increase its 2012-13 season farmgate milk price forecast before retentions to $6.60 per kilogram of milk solids.
Fonterra's interim results last week forecast a payout of $6.12/kg for the 2012-13 season.
Westpac economist Nathan Penny said dairy prices had increased almost 50 per cent in the last four auctions and had doubled since May last year.
Drought coupled with strong demand from China continued to push up prices, he said.
Southland Federated Farmers dairy chairman Allan Baird said prices were expected to last until early spring.
The 2013-14 season looked positive for dairy farmers, with Fonterra expected to start talking about prices in the mid-to-high sixes, he said.
"It's good for our province in the short-term that some commodities that our province produces are doing well at the moment."
However, dairy prices fluctuated and "what goes up could go down".
Southland Chamber of Commerce chief executive Richard Hay said the dairy industry could not fill the gap if the aluminium smelter closed.
"The smelter is a very strong leg on our economic table.
"The dairy expansion will never fill the gap if Tiwai was not there," he said.
The real advantage of the smelter was the direct impact it had on about 3000 jobs and the families it attracted to the region, he said.
"To lose 3 to 4 per cent of the population would be a major blow to the community and economy of this region."
A lot of businesses would not be able to survive without Tiwai and its closure would affect other parts of the community such as schools, Southland Hospital, roading and the police force, he said.
AT A GLANCE
NZAS contribution to Southland:
- $525 million, or about 10 per cent of Southland's GDP.
- Employs about 750 staff and 140 contractors.
- Approximate export value of $1 billion a year.
- Directly affects more than 3000 fulltime jobs.
- Accounts for 30 per cent of Southland's exports.
- 45 per cent of South Port's cargo by volume is the smelter's. – Source: Venture Southland and Southland Chamber of Commerce
Dairy's contribution to Southland:
- 8 per cent of Southland's GDP.
- More than 900 dairy farms that each generate more than $1.2m average annual revenue from milk production.
- At least half of the revenue is spent on the local economy and on farm expenses.
- There are more than 506,000 dairy cows, which produce 11.5 per cent of New Zealand's milksolids.
- More than 3000 fulltime equivalent people working on dairy farms.
- In 2010 there were also 426 employed in milk processing. – Source: DairyNZ
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