Labour’s finance spokesman Grant Robertson said the Government used a whole milk powder price of US$3400/tonne by 2018 in its Budget figures in May.
But the latest OECD-Food and Agriculture Organisation Agricultural Outlook predicted only US$2617 in 2018 and a gradual climb thereafter to $3300 in 2025.
Robertson said the Government’s figures were wildly optimistic and dairy farmers needed world powder prices about US$2650 to break even.
They were now about $2000 and the OECD report predicted they would not make $2600 until 2019.
“This has serious implications for the dairy sector and the economy as the industry’s total direct and indirect contribution to the economy is 5-6% according to Treasury analysis,” Roberston said.
“In this scenario farmers will not be in a position to reduce their $40 billion debt any time soon.
“There are flow-on consequences for the Government’s own books and whole communities remain reliant on the industry for their livelihoods.”
Finance Minister Bill English said dairy export earnings had fallen but total exports had risen, showing some compensatory growth in other areas.
When the 2016 Budget was written the 2015 OECD-FAO outlook was the latest available, not the 2016 one with revised figures just published.
It said world milk growth would moderate to 1.8% a year in the next decade, except for India and Pakistan where the rate would be twice that.
The real price of milk powders would recover from current lows but those of butter and cheese would decline slightly.
Over the decade NZ production would grow from 24 million tonnes annually to 26m; European production would go from 160m to 180m.
Even 1.8% a year growth in Europe was twice the historical level because dairy quotas had capped annual growth at 1%.
India would become the largest milk producer in the world, with more than 200m tonnes annually.
