Figure 3: TWI and Terms of Trade  Source: Statistics New Zealand, RBNZ. A key issue is whether the strong increase in global dairy prices represents a permanent shift, or whether it reflects cyclical elements. We believe both factors are present. Structurally, the demand for protein is rising rapidly in middle income countries as per capita incomes and urbanisation increase.
China’s 50 percent increase in dairy imports in 2013 reflects this structural change, as well as sluggish growth in Chinese milk production as small, inefficient producers leave the sector as part of the Government’s efforts to raise the quality of raw milk production. But cyclical or temporary factors are also in play.