Farmers will be keeping an eye on auction prices and also on competitive changes in global dairy market.

This will be the year in which New Zealand dairy farmers, companies, investors and their bankers will find themselves consumed by a crucial question - is the White Gold Rush finally over or will dairy prices trend upwards again quickly when demand picks up?

It's a serious question.

Since the global financial crisis - which pertinently coincided with the melamine disaster in China - New Zealand has won a reputation as the Saudi Arabia of milk.

Dairy is NZ's major export sector. But it's also a highly leveraged sector where much individual wealth has been made in recent times with the upshot that what might turn out in retrospect to have been excessive returns capitalised into farm prices.

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Farmers who have their balance sheets in order can withstand the impact of this season's foreshadowed milk payout cut to suppliers by all our major dairy companies from Fonterra (its forecast payout is $4.70 per kg/milksolids) down.

But even they will be keeping a watchful eye - not just on prices achieved at the GlobalDairyTrade auction - but also on the competitive changes in the international dairy market.

The biggest changes are already being directed by China.

China has actively pushed its major companies to open up direct supply lines from the United States and elsewhere to reduce its reliance on New Zealand as its key foreign dairy supplier. Along with that has come substantial direct investment by Chinese firms in NZ dairy subsidiaries.

It's a rational response to an over-hyped market where the Chinese Government has been taking a lead in trying to manage dairy price settings - as it did previously with the iron ore and coal markets.

During the White Gold Rush all manner of NZ players invested in dairy farms or infant formula plants enticed by the insatiable demand of Chinese consumers.

We saw the impact here with Chinese New Zealanders going on shopping sprees at NZ supermarkets for cans of baby formula to send home to middle-class parents who wanted to trust the food they were feeding their single-child families.

They were also prepared to pay well over historic prices for imported fresh and UHT milk for their families.

Demand has now pegged back within China, affecting not just the price of imported product from New Zealand but also Europe and the US, which increased production during the White Gold Rush.

It's also had a huge domestic impact within China.

Over the past week there has been a spate of headlines in China reporting how some Chinese dairy farmers have resorted to throwing out milk and killing their cows because of depressed milk prices. The upshot is the powerful Chinese Ministry of Agriculture wants provincial governments to come to the aid of affected farmers and is also putting pressure on major companies like Yili and Mengniu to buy local.

The Chinese Government does feel some responsibility for the welfare of the farmers.

Many of them invested in dairy herds as part of the central government's war on poverty programme during the early 2000s, at a time when China's former premier Wen Jiabao was urging Chinese to drink a glass of milk a day.

The upshot is that domestic herds increased from 1.5 million to 6.5 million cows over the period.

The problem the smaller farmers who lack scale face is that not only has demand fallen but also the price for domestic fresh milk has tumbled and with it their ability to make sufficient profit to stay in business.

China has been the big driver of dairy fortunes in this country.

During the 2103/14 season there was a huge spike in dairy prices - not just for infant formula but for the milk powder which forms the base of the global dairy commodity market. It's notable that NZ's dairy exports (by value) rose by 31 per cent in the March 2014 year on the back of a 106 per cent rise in exports to China.

Much of this was driven by the increasing Chinese demand for foreign "safe" dairy product which increased dramatically in the years following the contaminated milk scandal of 2008, which resulted in consumers losing confidence in their own domestic products.

As Infometrics has pointed out, the additional Chinese demand accounted for 84 per cent of the overall lift in NZ's dairy exports during the March 2014 year with 34 per cent of NZ's total dairy exports by value shipped to China as milk powder.

The economic forecasters reckoned the incredible demand from China for NZ dairy products was consistent with the Chinese rebalancing story.

But the crucial issue facing the NZ sector is that China is actively seeking to reduce its reliance on our dairy industry. The "false botulism" scare which affected Fonterra has simply spurred Chinese efforts to diversify risk with new investment going into European plant and supply deals forged with players like Dairy Farmers of America.

The White Gold Rush may well be over as far as China is concerned. But there are other valuable markets in the Middle East, Latin America and Southeast Asia which may provide the demand drive for the future.