Keep calm and carry on

There are still many unknowns around the Fonterra whey product contamination scare, but on the evidence of last Tuesday’s dairy auction it has not evolved into a serious negative for the wider economy. Meanwhile, the New Zealand labour market continues to gradually improve, but wage pressures have yet to emerge.

World dairy prices fell just 2.4% in last week’s GlobalDairyTrade auction, a modest decline in light of the contamination issue. Prices were still the sixth highest on record and over 70% higher than a year ago.

Indeed, the fall was not significantly different to what we were expecting before the contamination issue broke. We had penciled in a decline of around 20% over the remainder of 2013 as New Zealand dairy production recovered from the recent drought. In particular, we were expecting some payback from a 5.3% rise in the previous auction. So at this juncture, the contamination issue doesn’t seem to have had a major impact on Fonterra’s pricing power. Only time will tell what the longer-term consequences will be for trust in the Fonterra and New Zealand brands.

Read the full report: Market Research



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