Federated Farmers says a decision by the European Union to reintroduce dairy export subsidies could not have come at a worse time.
The EU is set to resume paying subsidies to producers of butter, cheese and milk powder next week, after abandoning the practice two years ago.
Federated Farmers' dairy chairman, Lachlan McKenzie, says the move will drive down international dairy prices at a time when prices are already at a 12-month low.
At the same time, he says, the cost of producing milk has increased significantly, rising by a third in the past year.
Mr McKenzie says the combination of rising costs and falling prices will make it harder for farmers to make a profit and to finance repairs and maintenance.
Earlier, the Trade Minister Tim Groser said the decision was a backwards step in trade talks that could have benefited New Zealand producers.
He said the World Trade Organisation was making progress with the Doha trade talks, which aim to remove such subsidies.
Mr Groser said New Zealand's farmers would gain about $1 billion a year if the subsidies were scrapped, but the EU's decision does nothing to promote confidence in global trade negotiations.
