Even while dairy payouts fall, remember the workers

The news of plummeting dairy prices should have left no one surprised. A period of extended positive returns encouraged the conversion of pine forests and sheep and cattle runs into dairy farms complete with big budget irrigation schemes, large new barns, new tractors and utes, often funded by debt or banking on high returns in the future. According to Dairy NZ, the average dairy farm has invested $850,000 into capital development in the recent boom. Farms and herds have gotten bigger and dairy production has multiplied. While questions about whether dairy has peaked resurface over time, the law of supply and demand should have indicated that oversupply and weakening demand would lead to an end of the boom.
Recent record milk production levels have been met with record low prices, and in the face of ‘severely overestimated’ expected returns, stockpiled supplies, and increasing international supply, there are concerns again about the lack of depth in the New Zealand economy. Despite a billion dollars worth of expected capital development in dairy processing capacity across the country, little of it is value added, predominantly for the production of dry milk powder. Dairy export returns provided an estimated $14.3 billion to provincial economies in 2014, an 40% increase on the previous year, but there are fears for the wellbeing of indebted farmers, already subject to the vagaries of the weather, and now at the mercy of the markets, they themselves have flooded.
We’ve got about 6.6 million dairy cows in New Zealand, but this year it’s estimated a million will be killed, ‘surplus to requirements’, in the first major reduction since herd size growth of over 30% in the last decade. But sadly, these aren’t just economic units of value to be disposed of, they’re living, sentient beings, and it’s a sad reflection on our attitudes that we can so easily expend them when we realise we’ve overshot the market.
Isn’t that just the Kiwi way though? Our tendency to run with the boom and invest in the latest ‘next best thing’ has set us up historically for bust. Whether it was whales or seals, gold, timber, mutton, kiwifruit, or even the speculative housing market, we’ve got a tendency to fad economics, a bandwagon investment pattern that can never be sustainable long term, especially fuelled by debt.
The concentration of the NZ economy into a few predominant sectors made us particularly vulnerable to shocks in history, and so it is today. A small country dependent on a narrow range of raw commodities selling to larger external trading partners. We’ve been here before. But John Key and Bill English reckon it’s all ok and things aren’t too bad off.
To many like Bill English and John Key, no doubt it feels like we are all doing well. We weathered the Global Financial Crisis, credit is still relatively cheap. Those who got into the housing market and secured rental or investment portfolios have seen their values rise. In the bigger cities, urbanisation, house building and rebuilding, and government infrastructure projects have provided stable employment prospects.
But lest we forget, especially in the face of public concern for the hardships of farmers, the two or three tier economy that really exists in New Zealand society. The ‘rock star’ economy has always been one that serves some better than others. In 2011 the top decile earned 8 x the bottom decile. One in five kids live in poverty. The promised ‘trickle down’ of wealth from deregulation has yet to arrive, more than 30 years after the event. Inequality in New Zealand is greater than ever before.
Outside the cities, and in some sections of society, unemployment rates remain high. There are workers on minimum wage doing multiple shifts to cover power and rent. 40,000 people got their power cut off last year because they couldn’t pay the bills. Energy and food costs require a disproportionately high share of weekly income. There are those who can’t find a genuinely affordable house to rent or buy (even if they could get the credit). Economically and politically marginalised workers are subject to abuse by their bosses; unsafe working conditions; precarious employment. Areas such as Northland are more like Timor or Greece according to economist Shamabeel Eaqub, compared with those such as Orakei in waterfront Auckland that resemble the wealth of Switzerland.
So while we contemplate the (global) price of milk, and what it means to the New Zealand economy and hardworking farmers, let’s also remember all the other hard workers in New Zealand, often unseen in night work, manufacturing, labouring, menial low paid jobs without safety or security. While some sectors in the economy are vulnerable because they put all their investment eggs in one basket, some workers can’t even afford the eggs.