Dairy Prices

The New York Times reports a huge surplus of milk production that is causing dairy prices to fall rapidly.

But now, demand for dairy products is stalling amid a global economic slowdown and credit crisis, even as supplies have increased. The result is a glut of milk — and its assorted byproducts, like milk powder, butter and whey proteins — that has led to a precipitous drop in prices.

The Agriculture Department has committed to buying 111.6 million pounds (50,000 tonnes) of milk powder at 80 cents a pound, for roughly $91 million.

This is bad news for our economy. Dairy production is to the New Zealand economy what the auto industry is to the United States. New Zealand used to be a country with 3 million people and 60 million sheep, but that has changed over the last few decades, as many farmers have converted from sheep to dairying. Dairy products now account for nearly a quarter of exports.

The collapse in the price of milk powder will have a serious impact on our economy.