Fonterra, New Zealand's biggest business, says the effect of China's measures regarding consumer appetite are still uncertain.
Fonterra, New Zealand's biggest business, says the effect of China's measures regarding consumer appetite are still uncertain.
Dairy multinational Fonterra says China’s economic stimulus measures are positive for Chinese consumers but it’s uncertain how they will play out for demand for New Zealand dairy products.
Trade strategy manager James Robertson said how China’s central bank stimulus package - its biggest since the pandemic - translated into increasing consumer confidence and demand for dairy and imported dairy in particular was uncertain at this stage.
The measures, mostly concerned with monetary policy, including offering more funding and interest rate cuts, are seen as a bid to restore confidence in the world’s second-largest economy, address economic stagnation and move the country back to the government’s growth target.
But analysts have warned more fiscal help was needed to achieve those goals.
Robertson said Fonterra continued to work closely with its customers and teams in China to monitor any potential changes in demand.
A number of factors influenced demand in the market, he said.
“We’ve seen strong demand across the past year for our foodservice channel and China has been active in the purchase of milk powders in recent GDT [Global Dairy Trade auction] events.
“This has been supportive of the recent in our forecast farmgate milk price range for the 2024-2025 season to $8.25-9.75 per [kilogram of] milk solids.”
The Dairy Companies Association of New Zealand (DCANZ) said the easing of monetary policy in key markets would add to a positive demand outlook for New Zealand dairy products.
DCANZ executive director Kimberly Crewther.
“Global demand for our products has held up in recent years as more consumers seek the nutritional benefits of dairy. Monetary policy easing, which reduces cost pressures on consumers, will further support this trend,” DCANZ executive director Kimberly Crewther said.
ANZ’s latest agribusiness outlook report said economies around the world were receiving stimuli, either through direct support as in China or easing of monetary policy.
But it could take “some time” for the effects to translate into improved economic activity and higher consumer confidence, it said.
However, the moves were good news for New Zealand exporters.
Meanwhile, ANZ said the outlook for New Zealand’s primary sectors was mixed.
The dairy sector had improved considerably. Export prices for dairy products had firmed and the milk price was forecast to be the highest on record, its report said.
Global beef markets were also strong, despite losing some ground recently.
Lamb prices had shot up, driven by domestic procurement pressure, but ANZ expected the spike to reverse rapidly later in the year unless there was a “dramatic improvement” in export prices.
In its latest agribusiness report, Rabobank said while New Zealand dairy farmers and those in other export countries had seen a boost in their farmgate prices, China was experiencing much lower prices, at levels not experienced in more than a decade.
“Sluggish” dairy foodservice foot traffic remained a factor to watch, Rabobank said.
“In many economies around the world, foodservice performance is sluggish as consumers cope with cost of living pressures. This is driving foot traffic lower and could have a negative impact on dairy demand for products such as cheese.”
The US Dairy Export Council in its latest update said on the positive side for demand, inflation in most major markets was near pre-pandemic levels.
The World Bank believed inflation should continue to ease back to expected averages in 2025-2026, the council said.
“In addition, China recently implemented its biggest economic support package since the pandemic, much of it aimed at increasing internal consumption (although the package also includes incentives for the domestic dairy industry).
“At the same time, headwinds - including the risk of increasingly frequent extreme climate events and conflicts in the Middle East and Ukraine - continue to temper the outlook,” the council said.
It noted recovery in China’s pig sector had helped revive flagging US low-protein whey exports earlier this year. Pig prices had remained well above levels seen earlier in the year and throughout 2023 but they had been sliding since mid-August.
US exports to other destinations in August had helped pick up the slack, with volumes up to Southeast Asia (20% or 1589 metric tonnes) South America (86%, 1450mt) and the Middle East-North Africa (1075%, 1250mt).
“While US shipments of low-protein whey to China faltered in August, the country helped drive US WPC80 [whey protein concentrate] exports to their second-highest monthly total of all time at 7944mt,” the council said.
WPC80 shipments to China had surged 281% (2521mt) in August, more than offsetting declines to the number two and three US export markets, Japan and Brazil.
Andrea Fox joined the Herald as a senior business journalist in 2018 and specialises in writing about the $26 billion dairy industry, agribusiness, exporting and the logistics sector and supply chains.
