Dairy subsidies to cost NZ $122m

Federated Farmers president Don Nicolson got a lot of attention for his piece in the Wall Street Journal on milking trade subsidies.

Perhaps he should follow that up with an invoice because the New Zealand Institute of Economic Research has calculated that the subsidies on dairy products introduced by the EU and USA will cost the New Zealand economy $122 million.

New Zealand’s dairy output may fall by around 5% and the value of milk, butter and cheese exports could decline some 8% as American and European subsidies create an oversupply of product, according to the NZIER’s latest Insight newsletter. The think-tank predicts the global economy will be worse off by around US$41 million, although countries such as Japan and Korean would benefit from lower world prices.

The prospect of lower dairy prices “will cause kiwi farmers’ incomes to fall below where they would otherwise have been, through no fault of their own,” said the institute’s deputy chief executive John Ballingall. “The risk of ongoing retaliation between the U.S. and EU, and potentially others, could lead to larger increases in subsidies, tariffs and other trade barriers over time.”

The immediate impact of the subsidies was partially responsible for the decrease in Fonterra’s forecast payout for the new season.

The threat of ongoing retaliation, bigger subsidies, tariffs and other trade barriers is even more concerning. It will hinder the recovery and hamper progress towards freer trade.

The NZIER Dairy Insight newsletter is here.

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