LONDON - Dairy giant Fonterra hopes the New Zealand dairy industry will benefit from the speedy rebuilding of war-ravaged Iraq.

Chief executive Craig Norgate said in London yesterday that he saw no reason Fonterra should not play a part in Iraq's recovery by supplying dairy products to help to feed the Iraqi people.

It was unlikely New Zealand products would be excluded because of any United States irritation at the Government's stance on the war, he said.

The important thing was to feed the Iraqis. "Where the food comes from is not important."


Longer term, the rebuilding of the Iraqi economy was going to be vital because it had been a good market for Fonterra in the past.

In addition, Norgate said, resolution of the Iraq issue was probably a prerequisite to getting better dairy prices.

"The key determinant for global markets is how the Iraqi situation is resolved. That's far more important than any localised issue."

Earlier, Norgate told an international dairy industry conference that it was difficult to make any sensible comments on the international dairy market while there was so much uncertainty over the war.

"I am confident that a recovery of confidence globally will translate into an improvement in demand for dairy products, but predicting when this might occur is dangerous indeed."

Fonterra expected New Zealand milk production to continue the gradual rise seen this season from the previous season's production of 1.1 billion kilograms.

"Milk flow for the current season is up by around 3 per cent," he said, "and a similar increase is likely for next season."

Extra supply from New Zealand farmers would be more than offset in the region by less production in Australia, where a disastrous drought had shaved nearly 10 per cent off milk supply this season.


The decline in cow numbers, along with poor animal and pasture condition, meant "Australian production will not fully recover this coming season".

This supply-tightening out of the region had helped to underpin the recovery in dairy prices through the second half of last year and should ensure a largely stable pricing environment for next season as well.

"The demand side is more difficult to read," Norgate said.

"We see continued good growth in some parts of the world, particularly Asia, the former Soviet Union, and parts of the Middle East, but the picture is patchy."

The "downside risks" included the overhang of stocks of skim milkpowder and butter in the United States and Europe, and the "unfortunate and apparently increasing tendency of the US to dispose of those stocks through food aid".

Fonterra's expectation was that prices would stay somewhere near the present level through the rest of this year "but much depends on Iraq and its knock-on effects."