This weekend New Zealand’s trade minister announced that some of its exported dairy products have potentially been contaminated with bacteria that cause botulism. The trade minister noted that they understand that exports to Australia, China, Malaysia, Saudi Arabia, Thailand and Vietnam have been affected. As dairy products account for around 25% of New Zealand’s goods exports and around 5% of its GDP, these developments present a significant downside risk for New Zealand’s economy, with likely downside implications for the currency and bond markets, particularly in the short run.
– New Zealand’s Trade minister, Tim Groser, announced in a press release on 3 August that the New Zealand authorities had
formally notified the World Health Organisation that there has been a ‘potential contamination of some products, including follow-on infant formula, made from whey protein concentrate contaminated with the bacteria that causes botulism’.
– The trade minister also noted that they ‘understand that the markets to which contaminated whey protein concentrate … had been exported are Australia, China, Malaysia, Saudi Arabia, Thailand and Viet Nam’.
– China’s General Administration of Quality Supervision, Inspection and Quarantine Website reports that importers should withdraw any contaminated products and step up inspections of dairy products from New Zealand, with particular reference to Fonterra, New Zealand’s largest dairy exporter, and imports of infant formula milk powder.
– Dairy exports account for 25% of New Zealand’s merchandise exports (NZD11.6 billion in 2012) and account for around 5%
of New Zealand’s GDP. Implications
This weekend’s announcement by New Zealand officials that its dairy exports have potentially been contaminated presents a significant downside risk to New Zealand’s exports and near term growth. Dairy products are New Zealand’s major export product, accounting for around 25% of New Zealand’s total merchandise exports and around 5% of its GDP.
Public concerns from officials in China, one of the key markets for New Zealand’s dairy exports, suggest that demand is likely to be affected quickly. While the scale of the issue is difficult to assess at this stage, the confidence effect alone is likely to be significant.
In the short run, this is likely to present a downside risk to the New Zealand dollar and to the bond market.
The recent announcement by New Zealand officials of potential contamination of its dairy exports is a significant downside risk to New Zealand’s export growth.
25% of exports!?!? This is basically the equivalent in Australia of iron ore suddenly evaporating. A nasty income shock in the pipe (or the bottle).