A dairy processing head is warning that milk prices this season are under real threat of being pushed downwards thanks to surging energy prices swamping the country.
Open Country Dairy CEO Mark de Lautour told Farmers Weekly dairy processors are unable to continue to absorb the increases coming at them from all key energy suppliers.
While his company is relatively insulated for now from electricity price contracts, these will eventually end.
“We are fully aware of what is coming. We are in a tunnel with a big light coming down it.”
The squeeze of energy costs on the primary sector’s processors is already being felt.
Ruapehu District mayor Weston Kirton has signalled the closure of two timber mills in the Central North Island as they grapple with a 600% increase in electricity costs since 2021.
The mills’ closure will put 300 people out of work. Kirton said it is vital that the government top up such significant employers in the regions until a solid energy plan is formulated.
“We are not experts on the electricity market and how you can resolve the issue. But we are on the receiving end of its outcomes, which are bringing grief to our communities,” he said.
Electricity spot price increases have continued unabated this week, up 33% on average, a further leap on the 50% increase on the spot market a week earlier. Most industry users are reporting power prices that are double what they were 18 months ago.
The major energy cost surges are coming as the dairy industry gears up for peak spring milk flow, and farmers start to rebalance budgets after two years of double-digit on farm inflation.
De Lautour said the fact the price surge extends across electricity and gas supplies indicates the problems causing it go beyond any seasonal volatility in hydro lake levels. They reflect, he said, a major flaw in New Zealand’s ability to adequately plan for its energy needs.
“There is a bigger issue at play here. We have moved from coal to gas and electricity. We have increased demand for gas and electricity, and we have not got alternative sources in place. We have taken a big slug of stored energy out of the system by stopping coal use.”
Fonterra chief operating officer, Anna Palairet, said concerns about NZ’s lack of energy resilience have been raised by the co-op for some time. Fonterra runs a mix of energy types in its boilers.
“We are concerned that the high wholesale electricity prices and uncertainty in the gas market are impacting New Zealand’s export competitiveness.”
In the meat processing sector ANZCO Foods and Silver Fern Farms (SFF) have experienced a doubling of their electricity costs in the past 12 months, while also working to reduce reliance upon coal as an energy source.
SFF has managed to negotiate cheaper rates for the coming season that will still be materially higher than 2022 rates, and both it and ANZCO have doubled down on energy saving steps where possible.
Energy expert Jonathan Pooch of consultants DETA has warned NZ will have to adapt to what is going to be a “new normal” of high energy costs, with little in the pipeline of new supply to suggest they will be coming down any time soon.
He said the country is paying the price for failing to have a broad energy strategy, and any reactive response is going to cost significantly more than having planned ahead when also decarbonising the energy supply.
“This is really just indicative of the lack of infrastructure investment in general.”
He said whatever approach the government takes to rectify the problem, large amounts of money will need to be spent.
