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An NZX Agrifax and Dairy Week Special Report out today attributes the fall in commodity prices to the dramatic decline in consumer demand, not the introduction of globalDairyTrade.
Susan Kilsby, Head Dairy Sector Analyst for NZX Agrifax and Dairy Week, said, "globalDairyTrade has provided to the market a transparent means to see what the price is for whole milk powder and an insight into the direction of the market. To blame globalDairyTrade for the fall in prices is to ignore the market factors that have colluded to create the current price decline for dairy commodities.
"The introduction of globalDairyTrade in July 2008 coincided with the decrease in world commodity prices, but did not drive the decrease," said Kilsby.
The rise in consumer demand for dairy products in developing nations such as China and Mexico, but also in traditional dairy consumption nations such as the EU and US, pushed dairy commodity prices to unprecedented levels in early 2008.
Since this time, factors behind the decline have been:
- Increased supply of domestic milk in key markets such as Asia, the EU and US
- Adjustment of ingredient buyer purchasing due to high prices and short-term credit restrictions
- World economic slowdown which has crunched the middle class and emerging markets (big dairy protein markets) particularly hard
- Decrease in demand from key import markets such as Asia, Russia and Venezuela
- Substantial decline in consumer demand for dairy commodities
- Recommencement of the EU and US government intervention purchases
"Now we are in a situation where prices are such that the EU and US have recommenced their inventory stock purchases and, importantly for New Zealand exporters, the EU has reintroduced subsidies.
"Prices will come back, but not until demand returns. In the current tough economic climate, combined with the reintroduction of subsidies, it could be well into 2010 before prices rebound," said Kilsby.
Download the Full Article Here: “globalDairyTrade - Instigator of price falls or an insight into global market conditions?”
