Market Supply & Demand: Heavy Losses for New Zealand Dairy Farmers

A slowdown in demand for dairy products from China together with the impact of excess dairy supply is causing the New Zealand dairy industry (the world's largest) to suffer heavy losses.

The short video from the FT below provides an excellent illustration of the impact of changes in market supply and demand - though a painful one for New Zealand dairy producers.

It is claimed that around 85% of the New Zealand dairy sector is currently loss-making.

A key reason is the collapse in the commodity price of milk, which has been driven down both by weaker demand but also significant increases in milk production capacity.

Unlike in Europe, there is no government subsidy system for loss-making and heavily indebted New Zealand farmers to fall back on.

Rationalisation of the sector looks likely, unless the dairy sector is rescued by the forces of supply and demand and the milk price rises again.