Dairy prices drop again

Prices for milk powder at a world auction dropped by another 13%. This is bad news for our dairy farmers and our economy.

In the last 10 years, many farmers converted their sheep or beef cattle farms to dairy farms. The cost of conversion is high: dairy farmers need expensive milking machines, milking sheds with electricity, plenty of water – and that means irrigation in some dry areas, dairy cows, and more staff to milk the cows. To pay for these things, farmers borrow from the bank and then have to pay a high mortgage.

In the 2013/14 season, milk powder prices were very high: $8.40 a kg of milk solids. Now the price that farmers get for their milk powder could be as low as $4. This is not enough to pay the mortgage for some farmers.

Dairy farming has been experiencing a bubble but now the bubble has burst. Why have prices dropped so quickly? One reason is oversupply, a milk powder mountain. China has 800,000 tonnes of milk powder in warehouses. Warehouses in New Zealand are full of milk powder too. In addition, the US and Europe are now producing more milk.

Yesterday, the dairy company Fonterra, announced that 520 people will lose their jobs. Fonterra is a big company with a staff of 11,500 in New Zealand and more overseas.

Listen to June 3rd 2015 to hear more about dairy farming in NZ.

Vocabulary

• convert (v), conversion (n) – change X to Y (often used for religion e.g. converted to Muslim)
• cattle – cows and bulls
• irrigation – watering system
• milk solids – after the milk is converted to powder
• mortgage – a loan from the bank for property e.g. house or farm (Note: do not pronounce the ‘t’)
• warehouse – a big building for storing things

Metaphors: These are metaphors because they give you a picture in your mind.
• A bubble
• A milk powder mountain






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