China Imports of New Zealand Milk Jump Five-Fold, Aiding Quake-Hit Nation

China’s milk imports from New Zealand surged more than five-fold since 2008 as rising incomes stoked demand, sending prices to a record and bolstering the economy as it recovers from the deadliest earthquake in 80 years.

China, the biggest importer of New Zealand dairy products by value, purchased about 353 million kilograms of the country’s milk products in 2010, up from 69 million kilograms in 2008, according to government data supplied by Fonterra Cooperative Group Ltd., the world’s largest exporter. Fonterra processes 95 percent of the country’s milk and earns a fifth of its export revenues, the company said.

New Zealand is relying on China and other emerging markets to buy more dairy products to rekindle economic growth after a contraction in the quarter ended Sept. 30. Asian consumers are demanding more protein as incomes and nutrition levels rise, said Con Williams, rural economist at ANZ National Bank Ltd.

“Milk’s going to be an important component because it’s about 25 percent of export earnings,” Williams said. “It’s going to be a cornerstone in terms of earning overseas dollars and then getting that through the economy.”

Prime Minister John Key said March 2 there’s likely to be “virtually no growth” in New Zealand for the financial year through June. The economy might have contracted in the fourth quarter of 2010, entering its second recession in two years, Finance Minister Bill English said last month.

An economic recovery may be slowed by the 6.3-magnitude earthquake that struck the South Island city of Christchurch on Feb. 22, killing more than 160 people and causing an estimated NZ$15 billion in damage.

Growth Cut

Economic growth in 2011 is expected to be 1.5 percentage points lower because of the temblor, according to the Treasury Department. A “small contraction” in real gross domestic product is predicted in the March quarter, compared with a 0.5 percent growth forecast before the quake, it said on March 6.

High prices for New Zealand’s commodity exports may help Christchurch recover from its second quake in six months, English said March 1. Export prices rose for a sixth month to a record in February, according to the ANZ Commodity Price Index.

Whole milk powder prices surged 41 percent in Fonterra’s last seven global auctions, prompting the company to freeze local wholesale prices for the rest of this year.

Prices reached a record on March 2 amid sustained demand from China and concerns rising input costs may curb supply. Milk prices will likely remain at least 50 percent above historical averages in the longer term, Fonterra’s Chief Executive Officer Andrew Ferrier said on Feb. 14.

Diet Shift

As developing nations’ incomes rise, diets are expected to include more meat and processed foods, favoring dairy and livestock, according to an annual outlook from the Organization for Economic Cooperation and Development and the United NationsFood and Agriculture Organization last June.

Global food prices have surged on increased demand coupled with harvest disruptions, including a drought in China, as well as heavier-than-usual rains across parts of Asia. Food prices climbed to a record last month, according to a 55-item basket tracked by the United Nations.

China imported about NZ$2.1 billion ($1.6 billion) worth of New Zealand dairy products in 2010 from $732 million in 2008, according to the government data. The country’s milk imports are likely to remain strong this year as local supply struggles to meet demand growth, according to a Feb. 14 forecast from Dairy Australia.

Higher incomes, population growth and concerns about the safety of domestic milk supply after a melamine contamination in 2008 killed at least six infants will buoy demand, Williams said.

Dairy Farms

“Over the medium term, New Zealand is well positioned to supply that,” he said. “Longer term, it’s how can you work with the Chinese in the country to grow supply from what they have in terms of resources.”

Fonterra in October agreed to develop a dairy farm in China’s Hebei province to expand local milk production. Its existing Tangshan farm has doubled to more than 6,000 cows since it opened in 2007 and produces about 25 million liters of milk for local consumption.

Other countries that recorded the largest growth in imports include India and Sudan. India’s imports of New Zealand dairy products more than doubled to NZ$162 million last year, according to the government data. The value of Sudan imports jumped to NZ$114 million from NZ$39 million in 2008.

Australia and the U.S. were the second- and third-biggest importers of New Zealand dairy products in 2010, according to the data. Australia bought NZ$853 million and the U.S. purchased NZ$748 million of dairy products last year.

To contact the reporter for this story: Phoebe Sedgman in Wellington at psedgman2@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.

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