NZ spills milk in China shock

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From  Bloxo:

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.

Facts
– 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.

Bottom line

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).

David Llewellyn-Smith
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Comments

  1. I was going to write a post on this later today, but Bloxo has saved me the effort.

    This is potentially massive. Dairy exports are as important to NZ as iron ore is to Australia. NZ dairy exports and branding received a huge boost after the Chinese powdered milk scandal early last year, and this botulism claim could undo much of that windfall.

  2. Yes it is potentially a massive problem. Dairying affects a huge number of people in rural areas, towns, milk processing plants, powdered milk, cheese, yoghurts etc etc.

    And NZ has always maintained such a high standard of quality in the Asia Pacific region.

    Lets hope the contamination isn’t widespread and it’s removed from public consumption quickly. One shudders at the prospects of an infant death and the repercussions of that event.

    • Now that’s funny right there BB lol

      Ironic that China spits chips over NZ milk but the red lead in toys and other problems with cheaply produced items of dubious standard for years didn’t slow their exports to the rest of the world.

      Also I remember an article on preservatives being used on fruit and veg during the shipping process being hazardous to health.

      Is this protectionism via countries finally enforcing proper import standards?

  3. My view? IF the revenue does disappear from the NZ national accounts, we will have to ….borrow to fill the void. That’s more capital inflow, a higher dollar, higher interest rates (to convince our already nervous lenders to lend us even more), and a greater dependence upon…YOU! Not as our destination of choice for our goods and workers, but your banks…to keep our mortgages alive. What could possibly go wrong…
    Something like 5% of our workforce is directly employed in dairy to give us that 25% of exports. The other 95% do… well I’m not sure…but whatever they do, they live in nice houses.

  4. China’s batch of poison baby milk didn’t seem to do its exports any long term harm. Or did it??

  5. I think you missed the point….

    “these developments present a significant downside risk for New Zealand’s economy”

    Stuff the NZ economy, botulism is a significant downside risk to a persons health!

    🙂