Finance Minister, who just visited China, says 'perfect storm' has created huge milk powder stockpiles in warehouses in China; dairy prices may not pick up until late this this year

Finance Minister Bill English talking to reporters in Parliament on June 19. Photo by Lynn Grieveson for Hive News.

By Lynn Grieveson

Finance Minister Bill English has warned that a perfect storm of supply has created 'mountains of milk powder' stockpiles in China that could delay an expected recovery in global dairy prices until the end of 2015, but that the rebound was a 'matter of when not if'.

English made the comments to reporters in Parliament after returning from a week's trip to China, including to the western and south-western provincial cities of Chonqing, Chengdu and Xining.

He said he had seen a range of estimates about how long it would take for dairy prices to recover, "from picking up in the next few months to staying flat through to Christmas."

"I don't think there's much doubt that they are going to pick up, it's just a matter of when and how fast. But I see in the last couple of weeks the US Department of Agriculture increased its estimate of what stocks were being held in China and it appears there's been almost literally a mountain of milk powder in warehouses around China - more than people thought," English said.

"So that might take a bit longer to work through. I haven't seen any estimate that it would take years to clean up, but the way it has been described to me is that there's been a perfect storm of excess milk supply influenced by events in Russia and Europe and China and New Zealand and Australia, and that's led to these prices that I think everyone regards as too low for the health of the dairy industry, whether it's here, in China or in Europe," he said.

"But it's going to take some time for those prices to pick up."

He said he had not personally seen the warehouses full of milk powder.

"It's just that the more recent estimates have indicated that there's a bigger build up of inventory in China than might have been expected and that could have been one of the explanations of the recent price drop. I did get a view over there, including from some of our Chinese competitors, that they think the price must be somewhere near the bottom," he said.

English said consumer demand in China was in good shape.

"Even if investment is dropping off a bit in China, consumers have still got rising incomes - in fact, their incomes are rising quite a bit faster than here - and they want quality products and New Zealand is clearly identified as a source of high quality food," he said.

Still room for tax cuts? Or bring them forward?

English was then asked if the chances of tax cuts foreshadowed for 2017 were still realistic, given the dairy price slump and slower economic growth.

"We've signalled in the Budget that we've got some fiscal room for that in 2017. Over the next six months there'll be some different re-forecasts of future revenues and we have yet to see how that will pan out," English said.

"But the government's in a better state to handle that than some of the farming and farm services industries which are going to be reasonably hard hit over the next 12 months."

English said the Government had not considered bringing forward tax cuts to boost the economy.

"We haven't considered that, and the economy's still moving along in the 2% to 3% growth range and we haven't seen reason to change our view on that," he said.

Cheaper dairy farms?

English said he was also not concerned about the slump in dairy prices hitting farm values and triggering an influx of bargain hunting investors from China buying cheap dairy farms.

"Farm prices have proven to be surprisingly resilient in the face of the drop in prices and reduced confidence, although we are probably likely to go through a period where the number of farm sales drops right off because that's what happened last time we went through this. And then the price may find a new level," he said.

"I think you would find there's a lot of investors who would not be as interested in farmland now because of the view that it's probably pretty over...pretty well-priced. It doesn't have a lot of opportunity for capital gain. But there will still be interest from people who take a positive long term view of the dairy industry, and that's certainly our view."

Chinese concern at 'harder edged' tone of foreign buyer debate

English was then asked if Chinese officials had raised concerns about Labour's revelation on July 11 of data showing people with Chinese-sounding names bought 39.5% of homes through Barfoot and Thompson in Auckland from February to April.

He said the issue was not raised by officials in formal talks, but was talked about informally.

"There was a bit of background comment. Not so much about whether it is an issue, because all around the world there's issues about the rise in prices of houses in our big cities and in a number of places dicussions about the role of Chinese buyers in that. But there were a few comments about the tone, that it seemed more hard-edged than in most places," English said.

He denied having to do damage control.

"All I am saying is that it wasn't raised with me officially and I wouldn't have expected it to be, but unofficially it was raised. Not so much the novelty of having a go at Chinese buyers, but just that the tone of it seemed a bit stronger than usual. There was a bit of concern at the tone," he said.

He also denied trying to discourage Chinese investment in New Zealand residential property.

"We welcome investment that is going to lift our economy but I certainly wasn't there marketing our real estate as an investment opportunity," he said.

Hunting corrupt officials?

English said the Chinese Government's push to hunt down corrupt officials in other countries was raised in official meetings, but individuals were not mentioned.

"Part of a lot of the official meetings was the impact of the Chinese government's drive to reduce corruption," he said.

"With respect to how that effects New Zealand, one of the requirements that is being passed at the moment is that people open a bank account in New Zealand and when they open a bank account they have to go through the anti- money laundering processes, so it would have the affect of filtering out any inflows of cash related to corrupt activity or activity that people wanted hidden as they won't be able to hide."

Opposition reaction

Labour Finance Spokesman Grant Robertson said the Government had failed to diversify the economy after six and a half years in power.

"That's recklessly complacent of Bill English," Robertson said of the Finance Minister's reassurance of a rebound.
"They were warned that there would be a global dairy glut at least 18 months ago and they failed to respond to that. This is not just about the farmers themselves, who are doing it tough. It's about the regional towns and communities around those farmers who are now looking at billions of dollars gone from their economy," he said.
(Updated with reaction from Grant Robertson)


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Hang on, hang on. Did China just threaten us?

Hard to tell from the speed NZ government bobs it's head.

You mean the speed they grab their ankles.
Hard to see the value in these trips - a lot of the useful info came from the US+A or is readily available elsewhere. Least with Judith's trips she got a free cup of tea.


Concerned about the tone? Tough, make their laws the same as ours for foreign property buyers and then maybe you can complain. To repeat a question raised before - How is any foreigner, irrespective of origin, buying property in NZ and good investment in NZ? It is more like a conduit for money leaving the country just like the banks, insurance companies and some other large multi-national corporations.

Who the hell apart from speculators, would want to buy real estate in China's polluted cities, which thousands of Chinese people are fleeing from?

Exactly - quiet laughable that people are complaining we can't buy Chinese houses.
see -

The clever middle class who created these colorful landscapes are now moving into the west searching out new green fields to conquer

You could have said the same thing about london years ago with all the pollution and smog. But look at the prices now. China in the future will be very desirable place , as soon as they have build clean energy.


The 'tone' is a direct result of the Government's lack of acknowledgement and action. Australia, Canada, Singapore etc don't have this tone because they have foreign investment rules/tariffs in place.

Glaringly obvious, one would have thought


China with warehouses full of milk powder, who'd have thought. We just don't know how to play this commodity game.
Just read the article on Aussie commodity collapse so I guess by we I mean the capitalist idiots of the western world or some such.

Our naivety failed to factor in a demand collapse for re-hypothecated product creating exponential leverage financed by foreign bank lending post inevitable exposure and thus cessation, along with copper warehousing scams.

Isn't this a standard Chinese trading practice. Over buy, build up surplus stock, then stop buying to collapse the market and maintain control over it. They have done it to us before eg wool, timber. The Australians have also probably been sucked in re steel and a lot of other commodities.
At best this enables then to keep a hold over the market and at worst (and a probable reality) it collapses the asset prices of farms, forests mines etc; making it easier for them to buy them after the poor western suckers have borrowed to the hilt chasing an illusory, over inflated market. It is a classic Asian trading ploy. Unfortunately they would see this as fair and normal business and we are just naive suckers if we believe otherwise.


I for one expressed concern about this sort of thing back when the Crafar farms sold. Doesn't anyone else find it a bit odd that less than a year ago, in November, the Chinese leader when he was here, said that China would take as much dairy as we could produce.

For the right price I'm sure that they still will. That right price might be sub $0.50 per kg, but it exists none the less.

He said that because that was the polite thing to say.

Anyone who takes such declarations at face value is a huge fool (and I have a bridge to sell)....
oh, what? Our politicians and government believed them, .... why am I not surprised?

redcow, you mean a good old buyers scandal

like BHP buying Magma Copper while Sumitomo were found to be as long as you like.

BHP's problems stemmed from an "unfocused commitment to expansion" that had caused it to lose sight of the need to "optimize financial returns."
BHP Billiton has closed the final chapter on its disastrous $3.2 billion acquisition of the US copper group Magma Copper. The sorry saga ended with the group's announcement yesterday that Magma's San Manuel copper smelter in Arizona would be scrapped. The smelter was the jewel in the crown of what was once the prized acquisition of Magma in 1996.

or fast forward
Steps by the Chinese government to rein in credit raised companies’ borrowing costs in recent years and triggered a surge in commodities financing deals that Goldman Sachs Group Inc. estimates to be worth as much as $160 billion

Banks are examining lending linked to metals at Qingdao port amid concern that risks are more widespread in China, where traders use commodities from iron ore to rubber to get funding.

yeah those deals. thats why fonterra picking up Beingmate "most established" brand in China was ringing alarm bells.
why would anyone sell the best - if they were good enough to be firm in the market?
No-one ever sells a used car because it runs too well....

""Farm prices have proven to be surprisingly resilient in the face of the drop in prices and reduced confidence, although we are probably likely to go through a period where the number of farm sales drops right off because that's what happened last time we went through this. And then the price may find a new level," he said."

Land and productive assets are decoupled from commodity pricing...who could have guessed.

Those in the game are generally not the sharpest knives in the drawer from my experience.

Lots of farmers down south, I wonder how comfortable BE will be living amongst the disgruntled. Oh wait he's no longer a constituency MP is he? cant be voted out.

"With respect to how that effects New Zealand, one of the requirements that is being passed at the moment is that people open a bank account in New Zealand and when they open a bank account they have to go through the anti- money laundering processes, so it would have the affect of filtering out any inflows of cash related to corrupt activity or activity that people wanted hidden as they won't be able to hide."

So the measure is a direct response to a directive from the PRC regarding our inadequate anti-money laundering regime, but aren't National couching it in terms of local tax collection from direct foreign owners in our residential housing market?

Have we got a formal agreement regards data sharing of IRD information with China? I realise the US bullied the world in terms of their citizens living abroad with FATCA, does China have a formal initiative/intention to do the same?

And so, if a Chinese national is found to have laundered money here into residential RE investment - and that investment(s) makes a capital gain on realising an asset(s) sale - and the NZ Government collects a tax on that gain - does the PRC have a claim on the NZ tax collected as well, once it is determined that the money was derived from criminal activity in China?

No I cant see how it has a claim on the NZ tax collected, it does have a claim on the PRC citizen however.

You 'can't see how' based on what?

Double tax agreements

NZ has 39 DTAs in force with its main trading and investment partners - including China

Thanks! So no 'proceeds of crime' provisions therein?

That's really problematic - depends on where the crime is committed

If you assume there was fraud in China in acquiring the funds, then the DTA is inapplicable, but that raises the following questions

(a) What does China do about it - sure, it will notify the NZ Government
(b) What will the NZ government do about it?
(c) Will it be prepared to act on China's say so that it is proceeds of crime?
(d) Will it investigate how the funds arrived in New Zealand
(e) Will it investigate and pursue any intermediaries?

The mind bogles

The new rules the government is proposing to bring into effect on 1 October 2015 will create a Frankenstein monster of the government's own making

The best and simplest solution was to require all incoming migrants, on purchasing property in new Zealand to produce a Tax-Clearance Certificate from the country in which they are tax-resident. No Tax-Clearance, no-purchase - simple - it would be up to the Tax Authorities in the source country to confirm or deny - thus no requirement for the NZ government to get into a battle with that other country

As it now stands, if a criminal from China pops up in NZ (with fraudulent funds) and that crime is punishable by death in China, NZ will resist extradition and allow the person to stay with the naughty money - and it cant seize the funds because no crime has been committed in NZ - quite a dilemma

And I have said this many times before

Tax Clearances

29 June 2011

3 August 2011

2 May 2012
It should be a requirement for all intending immigrants coming into New Zealand with boatloads of cash to produce a "tax clearance" certificate from the tax authority of their country of origin to establish the money is clean and they were a taxpayer

16 July 2012
MONEY LAUNDERING: Hot money is coming into New Zealand destined for the property market. I have commented on this issue in the past so wont repeat it. But the issue is there. Never gets any traction. Refer the recommendation that all new migrants into the country with serious money should be required to produce a tax-clearance-certificate from their country of origin.

14 November 2012

The best and simplest solution was to require all incoming migrants, on purchasing property in new Zealand to produce a Tax-Clearance Certificate from the country in which they are tax-resident. No Tax-Clearance, no-purchase - simple - it would be up to the Tax Authorities in the source country to confirm or deny - thus no requirement for the NZ government to get into a battle with that other country

For goodness sake - with such a simple, sensible solution - what is our government doing, as whatever it is it is most certainly not in the best interests of New Zealanders.

Are they really that stupid, or are they really that corrupt?

Kate | Tue, 21/07/2015 - 16:01 - Both.

If there are "mountains of milk powder" (oh gee, does that mean the consumers weren't actually consuming as fast as we were told - oh did those consumption numbers (which came from where?) upset all the projection models?

Importantly we want to see the "experts" who gave the numbers heads rolling. We want to hear who wrote those projections and see them on the street, not having another go at our expense on another topic.

The data finders and accuracy checkers...and the people making sure those two were in place doing their job. they should be now looking for the same under-the-bridge "real estate" deals. Clearly the ball was in their court. None of this "new data" s..t. They had professional jobs to do, millions of New Zealanders' livelihood replies on their accurate results. And others of us that shouted warnings were ignored because of those clowns. 'NZ crap housing again''s time to start cleaning house and get rid of expensive excrement and hold _people_ (not taxpayers) accountable for their wages.

No information coming out of China has been true. An old guy once told me if someone does the dirty on you, never do business with them again. Think about it , if you do they will do it again and again. English and Key are soft in the head, Aussies govt has some guts , our lot have as much backbone as chocolate eclairs.

mmmm chocolate eclairs.
I feel like puddin' now

Damned good job they don't have backbones in them, eh, think of the possible damage to the teeth

you have to think that to get in their position Key and Engrish can't be _that_ dumb.

Hopefully now we'll start to see people piece together that jigsaw and find out where the pressure is coming from. A few more like the Barfoot hero putting light in the corners where things are being hidden/swept.

So the china milk miracle was fairy dust. They still bort the same amount. Trouble is they just havent eaten It. So what makes the experts think they ever will eat enough to chew through this extraordinary over production we have today.

but that's the free market in action for you. ie everyone rush into the latest money maker in parallel, the result a saturated and over supplied market and hence a price collapse is inevitable.

But China isn't a free market, didn't we know that?

In effect largely it is, you just have to buy the rights to do what you want by paying off the right ppl, this is how china works. Also the pattern of excess boom and deep bust fits the classic free market model IMHO so i suggest essentially it is.

They might want to chomp their way through it before it reaches its best before date, eh. That is about the only hope we have of demand going back up again

Yes what u said cowboy

" but that the rebound ( in prices) was a matter of when not if "

It depends on where from, and where to, Bill! The Nikkei hit 39,000+ in 1989, and dropped, and dropped, and dropped, falling some 80%. And at each drop forecaster happily wrote (Nick Leeson being the most obvious one!) "but the rebound was a 'matter of when not if'." Here we are 25 years + later and the rebound has been to half where we were back then. A rebound MAY come, Bill, but we could all grow old and die waiting if the World heads into much more of a downturn.

Correct. Strikes me that BE is digging a hole for himself ie gambling the market does indeed recover, if it doesn't he could be in an uncomfortable situation. Or maybe it will be more of "no one saw or could have foreseen this lack of recovery that was forecast by our XXX department"

Why would he be in an uncomfortable situation? Is farmer?

he is from where? as his ex? constituency?

I guess when you think about it this whole global food shortage spin has been a load of garbage.

Nope, there is a real shortage on the horizon, but there is a big difference between a long term real demand and short term speculation, rinse and repeat in many commodities I suspect.

Yeah check out US corn yields over the past 140 odd (cherry picked) years. Impressive.


I'm sure this has been said but surely they are gaming us on purpose. Develop their own, crash ours and buy us up. too easy.

Exactly as predicted 5 years ago

"I haven't seen any estimate that it would take years to clean up..." hmmm... didn't Goldmans Sachs predict a half decade milk glut: You're so full of sh#t Bill!

How long does milk powder last before it reaches its best before date? Reducing the best before date may help:) Also can it be used for anything else, like fuel? Our soil is probably quite valuable, as it grows trees quickly, have we thought of exporting top soil to china?

This is a standard Chinese 1000 year plan. Buy up so much, stop buying and watch it collapse, then buy the company or rights. They did this in precise metals, tried in iron ore in Aussie, now it is dairy land and factories. Well done China. Our politicians just do not learn, they have no response as they think in 3 year plans.

They've learn't their lessons well - done it before
the wool boom
China, a new economic tiger, fuelled the market. In 1988 it withdrew totally.
With this one act China discovered the enormous power it had,
and how to exercise that power to its advantage

NZ farmland - "...the view that it's probably pretty over...pretty well-priced" - lol !

OIO running like a charm..

The Shanghai Pengxin spokeswoman confirmed that there was no intention on the part of the company to sell the farms but it was going through the procedure because it had to follow the law.

I have no doubt that JK "isn't that dumb."
As has been referred to on these pages under "John Key's Lies" it's clear JK would not have been out of place in the Court of Caesar in terms of his addiction to the games of power.
The Corporate Construction of MSM supported by journalists' lack of intestinal fortitude, ably assisted by the comfortable smugness and 'wilful blindness ' (see author Margaret Heffernan for true definition of this term) of many of the Nouveau Rich BBs make the Machiavellian dealings of this Government possible.
Doesn't require much imagination to 'join the dots!'
BE has been to the same Cosby Textor School as the rest of the National MPs.
The 'newer recruits/junior school' are beginning to pass their tests with flying (sickening)colours, Bridges, Adams,Barry, Parata etc.
Many commentators on these pages have continually referred to the lack of prudent governance we have been clearly experiencing over the last 6 - 7 years, and the asset stripping of this country.
As the saying goes "if it barks like a Dog........"no amount of psychological Spin can turn it into anything but what it really is!
Is JK their political "Svengali?"

What a beat-up. The usual New Zealand hypocritical goody-goody media crowd screams "racism" whenever anyone dares to question or critizise whatever a "non-white" is doing (while direct racial vilification of Germans, for example, is perfectly ok). The Chinese pick up on the noise and get asked by the same NZ goody-goody crowd whether it is an issue, probably again and again until someone finally says "Yes". And then they turn back and tell us "I told you so" as proof that their anti-NZ, anti-free-speech self-vilification campaign is working.

There is something seriously morbid about journalism in New Zealand these days. Reality is irrelevant, only the ideological leanings of the writers guild seems to matter. Makes me puke.

Bill English - LOL!

These politicians tell us what they want us to hear and think, the reality can often be very removed, trust is being eroded, both in the government and Fonterra.

The main theme here is that these are events outside our control, no reasonable person could have expected us to foresee this total disaster. There will be flow on effects but don't blame us we were just doing our job, rather well we think.
The reality is that the government got involved in fantasy, believing we could double the value of Agricultural exports by 2025 without increasing risk.

A Ministry for Primary Industries official says the ministry's goal to double agricultural sector exports by 2025 is a "unifying call".

The ministry's director of verification, Chris Kebbell, said long-term relationships with agribusiness stakeholders had been bolstered by new partnerships within industry members, accelerating production to meet the target.

"As a result, there is a framework for engaged conversations and productive relationship," Kebbell said today at a Fieldays seminar discussing the goal.

The target will increase the sector's output from $32 billion in exports last year to $64b in 2025.
Ministry director-general Wayne McNee said the goal, which is part of the Government's business growth agenda to increase exports from 30 per cent to 40 per cent of gross domestic product by 2025, was an "ambitious target".