12 Jun 2015

Grim outlook for dairy farmers, Govt warns

9:57 am on 12 June 2015

The Government's warning dairy farmers the next few months will be the toughest for them in years.

Milk at Pak n Save Kilbirnie.

Photo: RNZ / Alexander Robertson

Finance Minister Bill English said the low prices farmers had been getting for their milk were really about to bite.

"The next three months will be about the lowest period of cash coming into dairy farms that we have seen for several years - so that means they will be very tight with their spending...

"We will see what happens as the payments for the next season start coming in through September, October, and they have a bit more cash."

He was confident the low prices would rebound and farmers would get through it.

But opposition parties said the warning was too late and that the Government's policies were a big part of the problem.

Labour's finance spokesperson, Grant Robertson, did not think dairy prices would rise significantly for a year or two, and he said farmers and rural New Zealand were in for a tough ride.

It had taken seven years, but the Government was finally waking up to the fact that the economy needed more diversity, he said.

"That's a late acknowledgement from the Prime Minister. I mean, a lot of people have been hoping that dairy prices would rebound and almost all of the Government's projections in the Budget were built on a significant rebound in dairy prices within the next year."

He said the Reserve Bank Governor and most analysts were now saying that was not going to happen.

New Zealand First leader Winston Peters said the economy was reliant on only a couple of key commodities selling to one major market: China.

He said Mr English's warning was too little, too late, and the Government had failed to foresee the looming crisis.

"Now, Mr English is doing again a proverbial dog-whistle to feign concern, when he will do and has done absolutely nothing about it."

Green Party's finance spokesperson Russel Norman said if dairy prices stayed low farmers futures would be in their banks' hands.

"There are a lot of dairy farms who are heavily indebted who are losing money at the current price, and they will be having to go back to their banks.

"The banks will have to make a decision whether they are going to refinance the mortgages or whether they are going to push those particular diary farms under and seek to sell those dairy farms."

But Mr English disagreed that the economy was too dependant on dairy.

"It's what New Zealand's good at and we have a proud record stretching back a long way now on dairy efficiency and productivity. It is only about six percent of the economy and 20 percent of exports."

Prime Minister John Key warned at Fieldays this week dairy farmers were in the middle of a perfect storm.

But he too said the long-term future for the sector was very strong.

"Ironically land prices aren't falling. The biggest indicator you would see, if there was really a long-term systemic problem, would be a reduction in land prices and that is not happening on farms at the moment."

Mr Key said the Reserve Bank was forecasting the low payout would take about $7 billion out of the economy.

Fonterra restructure 'long overdue'

A Waikato mayor and dairy farmer says the restructuring of Fonterra which could see hundreds of jobs go is long overdue.

Max Baxter, the Otorohanga mayor and a Fonterra shareholder, said the company should have acted earlier instead of waiting for milk prices to fall so low.

He says it is galling for struggling farmers to know more than 4000 Fonterra staff earn more $100,000 a year, including 17 earning over $1 milllion.

"It was formed on the back of a lot of hard work and graft that farmers have done over many years.

"So we still see ourselves as being the backbone of the company and when we're struggling to make any sort of profit whatsoever, it does seem a bit rough - incredibly rough- when you see those sorts of salaries out there."

Mr Baxter said Fonterra needed to look at its strategy in concentrating on low value milk products.

And a baby formula exporter said Fonterra's financial woes showed its strategy of pushing volume ahead of marketing high value products was flawed.

Chris Claridge, whose company Carrickmore exports 800,000 cans of formula to China each year, said Fonterra has sunk investments into whole milk and skim milk processing over the last five years.

He said Fonterra's over-reliance on China and Russia left it in a very dangerous position, especially as the current fall in global milk prices has been signalled for a year.

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