And later on Radio NZ
Mr Carter says, however, that New Zealand must live with the consequences of having its economy tied to the world market, and that it would be inappropriate to intervene beyond checking there is enough competition in the domestic market.
The ETS costs, according to the MoE, are estimated to be (source):
- around 2.5 cents per kilogram of milk solids
- around 6 cents per kg of sheepmeat
- around 3 cents per kg of beef
- around 6 cents per kilogram of venison
Hat-tip: No Right Turn.
It would be very interesting to watch how Mr Key would respond.
1. Deny that he said that milk product prices would go up.
2. Say that it was just one man’s opinion that international markets set……
3. Labour did it too.
3. It is Labour’s fault because…….
4. Lets just take a step back and ….
5. Lets talk about how the Budget is a wonderful…..
6. Let us have a look at my greenstone suit……
7. I haven’t got time to deal with trivial stuff like this…..
A clear example of the traps in saying what you think the audience wants to hear.
Hi,
in theory prices are somewhat determined by the international market, that price is determined by the demand/supply dynamic. Please could Labour tell NZ what would happen to the international price of milk, if the international supply reduced (assume constant demand and constant supply from other countries). If the ETS increases the cost of farming, this may impact on production levels as some farmers may in fact exit the industry as they for one reason or another are no longer able to break even, or other land use options, such as planting trees obtain greater returns. If NZ production levels drop, what happens to the international price of milk, and in turn, what happens to the price of milk in NZ?
Please post this and respond Trevor.
Thank you in advance.
If milk is set based on the international prices, then how was it that Fonterra was able to cap the price for the remainder of the year?
Also how is it that fonterra makes $1.86b in a year and has a negative tax bill?
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10707233
I hope that people know the reason why a co-op transfers its profits to its members to allow the tax to be managed at the lower levels and as an industry min the tax payable and max cashflows.
http://www.interest.co.nz/rural-news/53495/dairy-farmers-pay-lower-tax-couple-pension-ird-says-fonterra-gets-tax-credits-fair-
“Look, it doesn’t matter what you say, I can find someone with a counter-view”
Interesting that Ferrier was so eloquent and unequivocal on the Campbell Live clip but so reticent on 3 News tonight. I wonder why? Word is that his people had the PM’s people breathing down their neck?
Talk economics, if the international price of milk increases – for whatever reason – then there is usually a producer response (more people will supply at that price). The market responds to price signals.
But given the rising demand from China, the dairy price trend is upward – that is why there is Chinese interest in owning land here and vertically integrated supply lines they can buy or develop.
For range of reasons it is important to sort out a sustainable production standard (clean waterways and more efficient use of scarce inputs) and the placating the concerns of foreign consumers. Applying the Kyoto obligation into agriculture is problematic (we meet foreign demand and should only have to meet international best proactice in farming methods) but if we are to do this – the best way to do it is in a way where the cost to agriculture is returned as revenue for investment. The investment should improve supply levels (certainly the added value component to the industry).
1) How did Fonterra freeze the price of milk until the end of 2011 if they have no control?
2) Conclusion: Fonterra are passing the buck. Time the Government takes domestic pricing control from them and show them how its done, since they are so incompetent.
3) Foreign buyers can subsidise NZ consumers thanks. That way every New Zealander can benefit directly from our dairy trade.
Key: “…lalalalala Phil is a muppet” lalalalala…”
I suppose talk economics I should have said the impact on supply of dairy product, with an ETS cost of 2.5 cents a kg and a dairy price that is currently $8 a kg, is close to zero.
Talk economics: As NZ only produces 2% (15/578 million tonnes) of milk worldwide, I’d say the impact on worldwide supply of some farms going out of business would be negligible. But given a cost of only 2.5cents out of $8/kg (0.3%), I’d say the chance of any farm going out of business because of this would be close to zero anyway.
What about the supply chain costs ?.
In rural NZ the Fonterra tankers are ubiquitous. Thats a lot of diesel , which of course does pay its CO2 emissions. I would think the CO2 costs for the cows are quite small.
And considering the country as a whole is paying for the farmers CO2 right now with the government sending a billion dollars overseas to cover it.
Just this morning Labour Agriculture spokesman Damien O’Connor first denied then conceded on NewstalkZB that dairy prices would increase as a result of the Labopur policy on early entry to the ETS
John Key was on the money when he observed prices would go up.
Can someone please set the record straight? The radio this morning is reporting that the record dairy payout will give the average dairy farmer $1.5m income, and the payout is about 10% up on last year, and only 20% of dairy farmers carry debt, and that 4,000 new jobs will be created. So how come their average tax was only $1,500? Or is Fed Farmers just trying way too hard to recover from the damaging truth?
CV: They only froze the price in the NZ domestic market, i.e. a pipsqueak part of the international market.
jenifer: The average tax figure of $1,500 wasn’t for the income year that the record dairy payout 1.5m (gross turnover, not profit) falls in.
@ Bed Rater, okay, but even if the payment was up 20% that still delivers a million dollar plus income? And if most do not have debt, and therefore interest expenses, how do they end up with an average tax bill of $1500? If your analysis hold water, can we expect the average dairy farmer tax bill to rocket up to $300K this year?
Hi Trevor,
A really interesting link for you. Challenges a lot of what John Key ha to say about NZ and the economy. Lots about Dairy industry too. I’m adding this because I believe you are the sort of politician who could actually make a difference with the information it presents:
http://www.youtube.com/watch?v=OhCAyIllnXY
Linda
Jennifer, you need to familiarise yourself with NZ tax legislation, interest is not the only allowable deductible expense for a business.
Assuming an average tax rate of 28% (also the current company tax rate) a $300k income tax bill would mean taxable income of $1,071,428 which I don’t think really reflects the average dairy farmer’s net taxable income. (being roughly 66% of gross)
@ Bed Rater, nice diversion attempt, the old ‘drill into the detail’ trick, but really, no matter how you slice it up, these boys are rorting like crazy and not paying anywhere near their fair share, but are screaming like stuck pigs at the prospect of having their subsidies cut off.
talk economics
Can you explain how closing the alleged loopholes to make farmers pay more tax (National announcement in Budget) won’t make prices go up so farmers can recoup their “loss” that way?
Tracey- if we followed this question. Some would then argue that when interest rates increased prices should go up and when they drop prices reduce.
At some point you do need to drill into the details, (However I would hardly call my analysis above detailed)
Standing round shouting slogans is only a short term vote earner, sadly something both of the main parties know, and do anyway.
Also if we take Ferrier on his word that there is an international price, the same could be said re gold, a world wide easily tradable and transportable, high value low volume xcommdity. Yet even here there various markets around the world with varied prices. Gold in Aust, NZ, US, India, Middle east has various buy prices for the same weight.
we in NZ are also limited in choice to buy milk other than Fonterra 95% market dominance. I recall on Cambell there was a piece month ago re the reasons for different prices of milk by brand. When they are all the same yet price dramatically varies. If there was only one price why then same product, same factory different packaging price can vary by $1+/litre ???
Trev, don’t believe all that you hear, even if it suppots your position it still maybe wrong
I dont trust Ferrier he is as slippery as a snake. I wouldnt be quoting from this guy Trev he is about as dependable as Owen Glen.
It would be interesting to see if breaking the supermarket cartel would send prices up , down or the same?
As to the 2.5 cents per kilogram impost from bringing the ETS charges of 2015 forward to 2013 and its impact on farm profitability:
Farm operating income and costs
Milk income is received on a monthly basis but spread up to 15 months after supply, providing regular cashflow and helping moderate payout fluctuations from year to year. Each season’s milk income will vary largely according to international commodity prices, the exchange rate between the NZ and US dollar, and the processing company’s profitability.
Milksolid returns to farmers show income has increased on average by 3.5% (13 cents/kg Milk solids per annum since 1983). Taking the trend for this line, plus adding returns from the sale of surplus stock, gives sustainable forecast incomes of $5.25 to $5.75/kg Milk solids. Typical operating costs (South Island) range from $3.30 to $3.80/kg Milksolids. The operating margin therefore ranges from $1.50 – $2.50 per kilogram of Milksolids.
http://www.myfarm.co.nz/factsreturns
Fonterra is paying out $8 a kg for this year and forecasting over $7 for the following year. And generally the expectation would be of future returns over $6.
The trend is for rising operating margins.
The problem in the 2008/9 year (the one where half farms did not declare profits) was the high interest rates – farmers pay their mortgage cost out of their operating margin and only then is there a taxable profit.
Since 2001 interest payments on the average New Zealand dairy farm mortgage over land and buildings, livestock, plant, machinery, vehicles and Fonterra shares has increased from 60c a kg to $1.52kg.
Note the lower range for operating margin is $1.50 a kg.
In 10 years farm debt has increased from 10 to $40B – and thus many farmers have a rising capital risk exposirie to their farming operation. This more than low operating margins is the problem for dairy farming.
So indebted dairy farmers are now dependent on $6 per kg for a taxable income.
The average tax for a farm was $30,000 over the past 10 year – so about $90,000 profit. The profit on the average dairy farm is often higher than for other farms, especially in good payout years.
On an average dairy farm there would be about $5000 ETS tax impost at 2.5 cents a kg.
Farmers fight back:
http://www.stuff.co.nz/dominion-post/comment/5063022/We-are-not-subsidised-Mr-Goff-say-farmers
Dairy is non-scalable so not the best long term focus for NZ profitability. http://www.youtube.com/watch?v=OhCAyIllnXY
As a nation we work too hard for too little profitablity. The niche manufacturing markets give us better return and better scalablity that constantly looking at the relatively low return per manhour provided by dairy and tourism.
Thanks for directing us to this video clip Linda – what a great presentation! I noticed that Sir Paul acknowledged the important role of dairy farming in our economy when he said “without the dairy industry New Zealand would be desperately poor”. Yes, we do need to be more innovative in the manufacturing sector in particular but not at the expense of an efficient and profitable farming sector. It’s a case of win-win isn’t it?