New Zealand Trade and Enterprise's capital advisers report a big uptick in visits by potential Chinese investors in the sector and some sizeable chunks of dairy farmland are now the subject of applications to the Overseas Investment Office (OIO) which have yet to be disclosed publicly.
Cabinet Ministers Paula Bennett and Louise Upston have been deputed the delicate task of making a final decision on whether the Lochinver station should be sold to Pengxin interests through Pure 100.
The OIO's recommendation was received by the ministers just before Easter on April 2, 2015. Bennett was away for two weeks in late April. Her office said yesterday: "They have now requested more information from the Overseas Investment Office to assist them in making their decision. There is no statutory timeframe within which an application for consent must be decided."
Questions are also being asked within international dairy circles over whether China has been trying to manage down dairy prices so as to keep its own inflation rates under control as the Chinese economy drops down a peg. Under this scenario, China is said to have bought up large to overstock its own inventories with imported dairy products then turned the tap back a screw or three to help drive prices down. This has impacted on prices for dairy commodities on the GlobalDairyTrade platform. The problem with this scenario is that the Chinese dairy industry has also been impacted with escalating land and input prices which, together with low returns for milk, are making many of their own farms uneconomic.
Credit Suisse touched on this late last year when it declared the commodity super-cycle dead. It was time to get used to the commodity super down-cycle and China was the reason, the investment banks' strategists warned.
The issue is also being debated in UK dairy circles where concerns have been raised that the Chinese government has been deliberately stockpiling and that UK dairy farmers could be caught in the middle of an international milk price war.
The upshot of the commodity slump is that the quantity of New Zealand milk powder being sent to China is also way down. The $2.6 billion annual trade deficit announced on Tuesday is the largest since June 2009, led by a 27 per cent decline for milk powder, butter and cheese exports.
For Fonterra directors trying to gaze into the proverbial crystal ball at their board meeting yesterday, this is hardly news. The dairy co-operative has been trying to manage through a lengthy down-cycle.
To introduce another complexity: A Chinese Ministry of Agriculture official was quoted yesterday as saying that Chinese dairy farmers feared their government was sacrificing their own industry to promote trade with Australia. Dr Shen Guiyin was also reported as saying that he did not expect a drastic increase in total dairy imports into China but that Australia's contribution (expected to increase under the China-Australia free trade agreement) would potentially increase at New Zealand's expense.
When Fonterra was formed through the merger of two leading dairy companies and the NZ Dairy Board it was expected to one day occupy the status that, for instance, Nokia enjoyed within the Finnish market. The flagship company that would make the country proud and be a brand champion for New Zealand worldwide.
Much of Fonterra's success has been due to the high demand from China for imported, safe dairy products at record prices. But the consumer tide is changing. The Akurala infant formula launched by Synlait and New Hope on an online platform in China at a fraction of the usual imported prices is now being sold at low prices in supermarkets.
It's now the time for Government and industry to formulate a response.
For those that argue this is interference in the market, too bad.
That's how Fonterra was set up in the first place.
