90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: China tightens again; China lifts fuel prices; Call for 'Jasmine revolution'; Mideast revolts grow; NZ milk price freeze

21st Feb 11, 8:55am by Bernard Hickey

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news that Chinese authorities have moved again to tighten monetary policy by increasing the reserve asset requirement for banks by 50 basis points.

This is the latest in a string of measures to try to cool down growth and inflation in the Chinese economy, which is now the most important in the world for New Zealand. It is the second largest buyer of our exports and is the largest buyer of exports from Australia, which is in turn the largest buyer of our exports. See more here at Bloomberg.

China is desperate to control inflation and avoid any social and political instability.

As if to reinforce those fears, anonymous calls circulated on the Internet in China over the weekend for a 'Jasmine Revolution' with protests in 13 cities.

Chinese authorities clamped down on the talk and arrested political activists, stopping any public protests. China has also banned coverage of the Middle Eastern revolutions on local media and the Internet. See more here at WSJ.com.

This came as China increased the retail prices of diesel and petrol by up to 4.6% over the weekend, the first increases in fuel prices so far this year. See more here at Bloomberg.

Violence spread in the Middle East over the weekend. Bloody protests in Bahrain coincided with a massacre of protestors in Libya. Shares fell across the Middle East. See more here at Bloomberg.

Anger at rising food prices is at the heart of much of the protest.

Here in New Zealand, Fonterra announced late on Friday a freeze on wholesale milk prices after the government announced an inquiry. See Alex Tarrant's article here with 53 comments.

Countdown, which is owned by Woolworths' Progressive, has also announced a freeze on milk prices. See more here at stuff.

The New Zealand Dollar was basically stable over the weekend around 76 USc.

No chart with that title exists.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

30 Comments

by andyh | 21st Feb 11, 9:11am 1298232693

Just a post following on from last weeks discussion about how oil exporters are having difficulty maintaining export volumes in the face of soaring internal demand.

As if by magic this little gem comes along:

http://www.bloomberg.com/news/2011-02-19/opec-s-december-oil-exports-fa…

''Saudi Arabia’s exports fell to 6.05 million barrels a day in December from 6.36 million in November even as Saudi production rose to a two-year high of 8.37 million barrels a day, JODI said.

“This is a huge difference,” said John Sfakianakis, Chief Economist at Riyadh-based Banque Saudi Fransi, noting the 2.32 million barrel per day difference between what Saudi Arabia produced and its exports.

“It’s not clear if Saudi Arabia consumed the full 2.32 million barrels locally during that month, but what’s clear is that rise in local consumption is becoming eminent,” he said.

Energy demand in the kingdom will increase to more than 8 million barrels of oil equivalent a day by 2028, Hashim Yamani, president of King Abdullah City for Atomic and Renewable Energy, said at a conference in Riyadh on Jan. 23. That compared with 3.4 million barrels of oil equivalent a day last year''.

Its worth noting that Saudi production was around 9 million barrels as recently as 2006.

They have not maintained that level of production, even in the face of soaring oil prices; in addition the amount they export (which ultimately the rest of the world depends on) is decllining as they use more for their home markets.

Peakoil eh? Hoocoodanode?

by Bernard Hickey | 21st Feb 11, 11:40am 1298241613

Great link

cheers

Bernard

by Gummy Bear Hero | 21st Feb 11, 10:33am 1298237599

Imagine my surprise to hear a call , voiced on Radio National , for the government to subsidise dairy products for Kiwis .......... Our children are suffering ....... Fonterra owe us , we're entitled to cheaper milk , it is ours' .........

....... The Gummy one thought he had slipped through a time-worm-hole in space , and woken up in the 1960's !

Then I remembered that Winston Peters is making a run for parliament this year ......... And the chill reality set in ......

....... For New Zealand , it is back-to-the-future ......... Sad !

by Rob of the North | 21st Feb 11, 11:52am 1298242338

i that creep winston get's back in then kiwis deserve all they're not going to get...and i'll be moving to the phils. to set up a beach bar with Gumbo..Trader Bob's i shall call it!

by powerdownkiwi | 21st Feb 11, 1:46pm 1298249188

Rob - you could take a certain Cabinet Minister with you too?

Implicated with the BNZ as I recall.

by Boatman | 21st Feb 11, 10:34am 1298237640

I find it encouraging that Kiwis are standing up to Fonterra's monopoly pricing strategy.

Even though Fonterra say they can sell the milk on international markets at these prices , there is no justification for making super profits from New Zealanders.

Given that its all but impossible to import milk ( see the MAF regualtions) Fonterra will never have any competition and are acting like a monopoly

by Casual Observer | 21st Feb 11, 11:40am 1298241630

Boatman, is it Fonterra's fault that the government doesn't ensure that the corporate dairy processors don't also have to produce something for the domestic market?

Why is it that ppl get so emotional about the cost of milk? There are other food groups - fish, vegetables, meat that are also healthy for you but we never see the emotional debate about the rising cost of those items. $35kg for fish-seems to be quite acceptable to joe bloggs as there is never any comment about the government subsidising that, yet it is an important food item from a healthy eating point of view.

Silly me, I forgot, unlike the other food groups I mentioned, there isn't a real tall poppy in there to cut down like Fonterra. And we couldn't possible for go one latte or cuppaccino in order to buy milk - after all the latte/cuppaccino is more expensive than the cheapest milk!

One packet of cigarettes would buy quite a bit of milk even at todays prices, but for kiwis, cigarettes, lattes, eating out etc is more 'essential'. What food we buy is discretionary - always has been, always will be.

Fonterra freezing milk prices - seems they are damned if they do, and damned if they don't. As for the consumers - let them eat cake.

by Bernard Hickey | 21st Feb 11, 11:42am 1298241779

The Duke

Your line about getting rich is interesting. The good thing (or bad thing if you're depending on a surge of cash into the provinces) is that farmers are using this windfall to repay debt.

One bank has estimated, according to Fonterra's CFO, that farmers are likely to repay NZ$8 billion of debt over 2010 and 2011.

That's good from my point of view.

But tough for those hoping for an export led recovery.

cheers

Bernard

by Bernard Hickey | 21st Feb 11, 12:27pm 1298244434

Quite right. Good point on reinvestment. That's what we need. Plenty of reinvestment, rather than the splurge on holiday properties and provincial rental properties during the last dairy boom.

cheers

Bernard

by PhilBest | 21st Feb 11, 2:18pm 1298251080

Yep, even the last Westpac Econ Overview made the b. good point that "quality of investment" is far more important than "quantity of savings", which is what the politicians are shortsightedly focusing on, to the benefit of people who would have saved anyway, who now get subsidised. (And to the loss of people whose problem is excessive housing costs that mean that saving is impossible).

by Casual Observer | 21st Feb 11, 11:49am 1298242193

Thank you The Duke. ......deserve to get the market price for it.

As a farmer why shouldn't I get the best market price I can for my produce. If it gets too high, consumers won't buy it and my profit will suffer. No other food producer has to take a lower price for their goods.

by Elley | 21st Feb 11, 1:39pm 1298248792

My question is, why do NZers have to pay the same price as other countries for milk produced here? Surely, it costs less to distribute on the domestic market as there is no freight cost to remote destinations?

As for "consumers won't buy it and my profit will suffer.", I'd say if your profit hasn't been affected yet it probably will be soon. It seems people now give Coke rather than milk to their kids because it's so much cheaper. Seeing the obesity rate in NZ kids and the health cost it incurs for the country, I don't think it's something we should be too happy about. Trouble with milk is that it's really part of the staples, unlike some fancy foods that people can easily do without.

Also, maybe it's not just "why shouldn't I get the best market price I can for my produce". Maybe ethics come into it as well - whether you want the consumer to pay the max price they possibly will, or whether you want them to pay a fair price for the produce.

by Casual Observer | 21st Feb 11, 4:20pm 1298258438

Hi Elley

Take the subsidies to farmers in countries like the EU/USA etc away and see what it does to the price of milk in those countries.

Over 30+years of farming i am well used to my income going up and down. It's one of the few consistent things about farming. ;-)

With regards to transport. NZ has a population of approx 4mill spread over a wide geographical area. I doubt you would find that elsewhere in the countries you compare us to. Economy of scale is a factor. Fonterra is required by legislation to take the milk of any farmer that wants to join it - corporate processors do not. Consequently if a farmer decided to set up a large farm 4 hours from the nearest factory they have to accept it. I doubt there is a public let alone private,company anywhere else in the Western world that is forced by legislation to accept product from anyone anywhere.

Regards the Coke versus milk argument. It is about personal responsibility and priorities. Those who feed their kids Coke won't change to feeding their kids milk regardless of the price. Afterall, tap water is the cheapest drink of all and they still buy Coke.

Check out this link re Breakfast in Schools that Fonterra does with Sanitarium.

http://www.kickstartbreakfast.co.nz/

As bad as it sounds Elley, I a run a business so profit is a motive as a profit in the good times will help get me through the bad times. If the public at large want a subsidy for my product then they all can contribute to it via a government subsidy. I can not afford to subsidise NZ at large for their milk.

Why do I not see the same argument for cheaper fish, meat, vegies? Answer - because there is not a tall poppy to cut down.

by Elley | 21st Feb 11, 4:52pm 1298260368

Thanks for your reply. Good point about tap water. I understand that farmers are not volunteers and it is perfectly normal that they make a profit from their work. It just seems kind of wrong to me that people have to pay more for dairy in a country which exports so much of it than overseas.

I have another question actually. The "monopoly" argument could well be applied to the two big supermarket companies (no 3rd cheaper independant brand like Lidl here for example). Do you feel that the supermarkets add more margin than they reasonably should to the price they pay farmers for milk? Apparently a dairy farmer sells its milk for 80c/l to the supermarket but on the shelves it's approx $2.40l. I have no idea what the supermarket margin is after taking into account packaging, distribution, staff etc.

Re-fruit & vegies, I think that's something people actually talk about quite a lot. There were calls for no GST on such items. From documentaries I have seen on fruit & vegies, it seems supermarkets pay peanuts to the producers and overcharge the end customers. It hardly seems fair to either!

by Casual Observer | 21st Feb 11, 5:14pm 1298261689

I am sure the monopoly argument could be applied to the supermarkets Elley.

Its all about subsidies Elley. Even Aussie farmers have subsidies -

Dairy farmers have urged the federal Agriculture Minister to continue with interest rate subsidy schemes during a meeting in Shepparton yesterday.

http://www.abc.net.au/news/stories/2010/11/10/3062187.htm

You are correct re fruit and vegies - but that is all people do - talk and then go on and pay. No one goes to the govt saying that there should be a price freeze or that the growers are making huge profits or that the very large growers are controlling the price. Govt doesn't seem to require a review of fruit and vegie prices. In other words no other food group is treated like the dairy industry.

I like your website, by the way! :-)

by Elley | 21st Feb 11, 5:21pm 1298262088

Oh thanks :)

Well, I'm a great customer for dairy farmers. I buy 30l/week of milk... Four little children, I make my own yoghurt (1-2kgs a day) and have no intention to substitute it with Coke (will stop buying petrol first lol)!

by Casual Observer | 21st Feb 11, 5:26pm 1298262388

Just for the record - I maybe a dairy farmer - but I buy all my milk lol!

by Elley | 21st Feb 11, 5:14pm 1298261643

They don't pay less than anyone else, they pay more than anyone else! And that's in a country that exports its dairy to the rest of the world!

The reason why Kiwis should arguably pay less than the rest of the world for milk is the same reason why you pay a lot more to buy imported French wine and French cheeses than you would in France, or imported whatever compared to what you'd pay in the country that produces the goods... Freight isn't free.

by Vanderlei Luxemburgo | 21st Feb 11, 1:25pm 1298247911

i don't mind paying top dollar for milk. if it gets too high i'll stop. easy.

what i do mind is that nz's rivers have got much more polluted in the last 2 decades and while i believe that some farmers are making things better its happening pretty damn slowly considering these commodity prices are the best ever.

howabout the aforementioned "reinvestment" go towards riparian zones and so-on first?

by Casual Observer | 21st Feb 11, 4:40pm 1298259605

Hey VL check this out.

http://www.catchmentcare.co.nz/

I look forward to reading a blog from you on your experience as a volunteer in this programme. ;-) I may even see you at one of the projects if you do. :-)

Its good to read that you do acknowledge that some farmers are making the effort. :-)

It's not just farmers that have to make the effort though.

That same attitude was shown in the recent "disappointing" decision to grant the council a fresh 15-year consent to discharge sewage into the Heathcote River. http://www.stuff.co.nz/national/3956236/Comments-spark-war-of-words-ove…

How many people realize that their car wash water rinsed in to their storm water drains is damaging to the environment - that is should be let to soak in to land? http://www.es.govt.nz/documents/compliance/factsheets/vehicle-and-equip…

by neco | 21st Feb 11, 12:22pm 1298244175

It is not monopoly pricing at all...

Just out of curiosity who are then the other market suppliers and what is their market share? Also if Fonterra is not acting in a monopolistic fashion they would have nothing to fear from deregulation would they?

by Casual Observer | 21st Feb 11, 4:47pm 1298260056

if Fonterra is not acting in a monopolistic fashion they would have nothing to fear from deregulation would they?

Fonterra fears deregulation of the domestic market? I am not aware of anything stopping a processor starting up and supplying milk to the domestic market - whether anyone wants to or not may be more to the point.

by Kunst | 21st Feb 11, 5:54pm 1298264045

The Duke 11:37am

Q- The developing world cannot get enough of our milk, and subsequently this is NZ's chance to get rich. Q-end

An iliusion

Who get’s rich and who pays subsequently for the clean up ?

How much longer is the public tolerating the pollution of water, air, land caused by the giant NZdairy farm operation ? This part of agriculture isn't sustainable, parts of other farming businesses/ sectors and tourism are negatively affected. Climate Change, world markets, demand/ supply etc. ?? Considering all facts "Dairy Farming" doesn't make us richer as a nation.

by Boatman | 21st Feb 11, 12:58pm 1298246298

Seems I opened a sore wound with my comment about Monopoly Pricing .

Notwithstanding Fonterra's massive contribution to the NZ Economy, which is great , its both unhealthy and unfair that there is no real competition in the domestic market.

The result is always abuse of market domninance, its an inevitable outcome.

Why is milk cheaper in countries that are net importers such as the UK? And dont give that claptrap about GST , ITS NOT A FULL 15% because GST inputs are claimed all the way along the value chain

by JP | 21st Feb 11, 1:26pm 1298247969

Lucky our welfare system is keeping everyone away from protesting about high prices and pitching tents on all the roundabouts.

by Tim | 21st Feb 11, 1:58pm 1298249902

Freezing the local milk price for a year will have little to no difference on Fonterra or the farmers bottom line. It's really just a marketing plot to pull the wool over the consumers eyes and make them feel good about Fonterra. Truth is we in NZ pay more than Australia for milk and cheese - I'm not sure where abouts in the food chain the extra cost appears but there is no fundamental reason why we should pay more than overseas consumers.

As for the poor farmers, if you can't turn a profit at the current payout levels, then I suggest you sell the farm quick and find a job elsewhere, because you sure as hell shouldn't be farming.

by splineman | 21st Feb 11, 4:48pm 1298260086

What are peoples thoughts on the fact that most of the commodity price boom would have more to do with the US federal reserve balance sheet expansion of around 2 trillion than supply demand forces?

I find it amusing that in the face of blatant money printing / QE we still fool ourselves into believing in the "free market" fairy story of demand supply. People are swapping their newly created or lent paper for real things as fast as they can. Hence a commodity boom. pretty basic really. Happenned in France in the late 1700's and is a really interesting look into what we are beginning to experience these days. Debt will be repudiated through devaluation (money printing), while keeping interest rates ridiculously low, and the poorest will feel it the most.

High milk "prices" good....i'm not so sure.

Cheers, Nigel

by Andrewj | 21st Feb 11, 5:29pm 1298262566

Splineman, most of us are well aware. Bernake QE'd 29 billion last week with leverage upo to 800 billion went into commodities.

When I say deregulate, Im talking total deregulation, ie. raw milk for sale.

by Casual Observer | 21st Feb 11, 6:03pm 1298264622

Allow sale of raw milk Aj - go wash your mouth out! Don't you know raw milk is full of bad things like tuberculosis! Raw milk is SO bad for you. Well, so the PC brigade tell me.

by Andrewj | 21st Feb 11, 7:10pm 1298268630

CO, i know, I was bought up on it as were my children, had my early mornings with the house cow, dont miss the early mornings, but oh the cream and rice pudding.