31 Jul 2014

Lower payout could cost farmers $1.8b

2:34 pm on 31 July 2014

The industry organisation representing dairy farmers says their incomes are estimated to drop by a total of $1.8 billion following a drop in Fonterra's milk price forecast from $7 to $6 per kilo of milk solids.

DairyNZ said on Thursday that, based on 2013-14 milk production, an average farm would lose about $150,000.

Spokesperson David McCaw said most farmers would have budgeted for a lower payout, at probably about $6.50 and for some it will now put them below the break-even point.

"On average, our calulations are that the break-even point is somewhere around $5.50 or $5.60 per kg of milk solids.

"But there would be quite a percentage and possibly as many as 25 percent that will be beneath the break-even point, which means of course that they have to get financing to cashflow the business for the year, which always puts pressure on expenditure because they will have to reduce expenditure as low as they can because of it."

Mr McCaw said volatility around the milk payout forecast is part of everyday life for farmers and most would be prepared.

In a regional breakdown of the estimated reduction in farmer incomes by DairyNZ, based on a $1 drop multiplied against regional production, Waikato would lose $484 million, Canterbury $353 million and Southland $218 million.

Estimated losses for regions

Northland - $100 million

Waikato - $484 million

Bay of Plenty - $126 million

Taranaki - $183 million

Hawke's Bay - $15 million

Manawatu - $82 million

Wairarapa/Tararua - $60 million

Canterbury - $353 million

Otago - $92 million

Southland - $218 million