Dairy's role in sustaining New Zealand - Fonterra

14 Dairy’s role in generating growth
3.2.2 Indirect impact on other industries
The indirect impacts can be broken down into the industry categories described in section
2.5. The numerical results are summarised in Table 5.
• Supplying industries – industries that supply dairy with intermediate inputs are likely
to benefit from a stronger dairy sector. However, the fertilizer industry loses 0.2% of its
sales. That counterintuitive result arises from the movements in the exchange rate, which
will be discussed further in the next section. As exports rise, imports become relatively
cheaper and that causes primary producers to switch away from domestically produced
fertiliser in favour of imported fertilisers.
• Government expenditure industries – as expected, the increased incomes from the
higher milk solids payout boost tax revenues and enable the government to spend more
providing services such as education, health, and law and order.
• Household expenditure industries – industries that households spend money on
are likely to benefit from increased incomes generated in the dairy sector through
employment and wage increases, and increased returns to capital. Such industries
include housing and real estate (which takes a large share of households’budget), and
consumption goods from the retail trade sector.
• Competing export industries – industries that compete for resources with the dairy
sector suffer from the dairy sector’s increased spending power. That is particularly so
for the sheep and beef sector, which uses many of the same resources. In addition,
the appreciation of the New Zealand dollar that results from increased exports of
dairy products hurts all exporters, as seen by the drop in production of the textile and
horticulture sectors.
10. The second simulation with a $1 per kilogram price decrease shows near identical effects in the opposite direction. In the interests
of brevity we report only the results for the price increase here.