17 Jun 2015

Dairy prices predicted stay lower for longer

11:19 am on 17 June 2015

The Treasury has warned dairy prices will remain in the doldrums for longer than it had forecast in last month's Budget.

But it said falling interest rates and the lower value of the New Zealand dollar would help offset the slump in dairy prices.

Milk at Pak n Save Kilbirne.

Photo: RNZ / Alexander Robertson

Dairy prices dropped again in the overnight Fonterra global dairy auction, the seventh consecutive fall. The average price was down 1.3 percent at $US2409 a tonne.

Treasury secretary Gabriel Makhlouf told Parliament's finance and expenditure select committee this morning the slump in prices was worse than expected.

"While we anticipated continuing weakness in dairy prices in our forecasts there is now a greater risk that prices could take longer to pick up, with the recovery starting later this year or in early 2016 rather than in the second half of this year as anticipated," Mr Makhlouf said.

That prompted Labour's finance spokesperson Grant Robertson to ask Mr Makhlouf about the Government's finances.

"In November last year you advised the minister that the surplus for 2015-16 was only likely if I quote 'dairy prices recover'. Do you stand by that advice," Mr Robertson asked.

Mr Makhlouf said Treasury was still forecasting a tiny surplus for 2015-16.

He said while dairy prices would remain lower for longer other factors, such as falling interest rates and a lower valued dollar, would help economic growth.