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Farmers in New Zealand's pillar dairy sector were reeling from a double-whammy Wednesday with dairy prices continuing to fall and expectations that a long-term drought is set to run on.
The overall price index on the Fonterra-run fortnightly GlobalDairyTrade (GDT) fell 1.4 percent to 2,405 U.S. dollars per tonne over Tuesday night, and followed a 1.6-percent drop in the previous auction.
The falling prices meant returns to many farmers would come in below the break-even point, warned the Federated Farmers industry group.
"Today's weak GDT result is disappointing and things are certainly looking much worse in terms of the farmgate milk price," Federated Farmers dairy chair Andrew Hoggard said in a statement.
He said much of the blame lay with subsidies that encouraged farmers in other countries to increase production despite falling market prices.
"It's economics 101. Supply is too high and demand is weak, which is keeping prices down," said Hoggard.
"Kiwi farmers need this to be addressed and for more trade deals to open up new markets and grow the overall pie."
Opposition lawmakers criticized the government for failing to diversify the national economy and dairy markets.
"The global economy has had a volatile start to 2016, with markets plunging, declining confidence in China's economy and commodity prices on the slide. New Zealand isn't insulated from this, especially with our over-reliance on dairy," said finance spokesperson for the main opposition Labour Party, Grant Robertson.
"With Chinese demand for milk falling and European supply increasing the medium-term outlook for our dairy industry is poor, " he said in a statement.
New Zealand First party leader Winston Peters said the effect of low payouts to dairy farmers appeared to be filtering through to cities, where retail spending dipped last month.
Farmers needed real markets and not "promises" like the controversial 12-nation Trans-Pacific Partnership trade deal agreed late last year.
"While the government has welcomed the lifting of sanctions against Iran, it has de facto sanctions on the world's second largest dairy import market, Russia," Peters said in a statement.
Also Wednesday, Primary Industries Minister Nathan Guy said the official drought declaration on the east of the South Island would be extended until the end of June.
"Marlborough, Canterbury and parts of Otago were originally classified as a medium-scale event on Feb. 12, 2015, and have had very little rainfall for more than a year now," Guy said in a statement.
