Govt: World 'awash with milk'

The Government is blaming a slump in milk prices on the world market being awash with milk.

But New Zealand First leader Winston Peters said National's economic policies and the high value of the New Zealand dollar were not helping dairy farmers.

In the Global Dairy Trade auction prices dropped 10.8 percent overnight to $US2746 a tonne, the second fall in a fortnight.

Mr Peters said he predicted the fall and it was a sign of rural areas lagging behind.

"I've been saying it for a long long time - what you've got is a fixation with Auckland, hollowing out the provincial economies and sucking all the attention and money to Auckland and that is not going to go on any longer."

But Minister for Primary Industries Nathan Guy has told Parliament the dairy market fluctuated.

"The world is basically awash with milk. We've got milk currently that is displaced from the Russia ban from the EU looking for a new home, and of course we've got some stockpiling in China. So all of those things mean that right now we are in a very volatile dairy market."

Mr Peters said New Zealand had a free market system that no other country followed and he would legislate to control the exchange rate, similar to Singapore's system.

"The one country that's not devaluing at the moment is New Zealand - every other economy has. And consequently we are leaving our people terribly exposed and the consequences are being seen in the Gisborne's, the Whanganui's, all round the country."

Economic Development Minister Steven Joyce firmly rejected that idea.

"Well, with the greatest respect to Winston I am old enough, and so is he, to remember the last time we tried to set the exchange rate in this country and it wasn't that successful...

"What he is basically saying is that he would legislate, presumably, to put the exchange rate at a level it won't naturally go and that means effectively increasing costs for the consumer and decreasing costs for exporters."

Mr Joyce remained pragmatic about the fall in dairy prices.

"It is challenging obviously for farmers and that makes it a bit challenging generally, but we fortunately are in a position where we have a lot of industries doing very well at the moment so it is probably less challenging than it would have been three or four years ago."

Meanwhile, the Fonterra Shareholders Council said some frustrated farmers were considering leaving the co-operative due to the price slump.