20 Nov 2014

Warning lower payout could cost billions

9:26 am on 20 November 2014

A payout to farmers for milk below $5 could knock nearly $6 billion out of the New Zealand economy, a rural economist warns.

At this week's global dairy auction the key product for dairy giant Fonterra, whole milk powder, fell by more than 5 percent from $US122 to $US2400.

Fonterra has said the price of that powder needs to rise to about $US3500 by March next year if is to maintain its forecast payout to farmers of $5.30 per kilo of milk solids.

ANZ agri-economist Con Williams said if the forecast price dropped to $4.85, the hit to the economy when compared with last season's record $8.40 payout would be $5.75 billion.

Fonterra has said it would revise its forecast payout next month.

ASB Bank has forecast that the payout would be $4.70.

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