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Dairy cows - Source: ONE News -
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The jump in Fonterra's forecast milk payout is a welcome boost for farmers and the wider economy.
It should mean an extra $1 billion or so of foreign exchange earnings going into the pockets of farmers, which one hopes will eventually flow through to the main street economy.
While farmers will be wary given the volatility of prices, this has got to be good news for the likes of retailers as farmers prepare for the Christmas spend-up.
And, it is particularly good for the shape of New Zealand's recovery. New Zealand cannot rely on increased borrowing and rising house prices for a sustainable economy recovery. It needs exports to do the heavy lifting and increased dairy price helps.
Driving the increase is a strong return in demand for commodity milk powder. Going by Fonterra's own auction, prices have risen about 80% since July, more than enough to offset the rising currency.
This is encouraging as it implies New Zealand is reaping the benefits of a renewed commodity spike coming primarily out of China and India - two giants who have escaped much of the global recession.
For a while it looked as if Australia was going to reap all the benefits - thanks to its huge mineral base - and our currency would be sucked along with it regardless.
That does not now appear to be the case, but with the New Zealand dollar over 72 US cents there is little comfort in the news for other exporters, in particular manufacturers.
Many are not getting the increases in prices for their goods and must contend with a currency at very uncomfortable levels.
As commodity prices rise it will be important that we do not lose sight of the need to keep developing value added products to sell, which over the long term should avoid the peaks of and troughs of booms.
On this front it was good to see Zespri announcing late on Sunday night that it will team up with the government to develop new, advanced varieties of kiwifruit.
The move is a clear acknowledgement that New Zealand cannot compete on cost with other bulk producers.
New Zealand needs to keep innovating and remain ahead of
the pack and Zespri's move looks on the face of it to be a good
one.
