24 Oct 2012

Falling payout risk for debt-burdened dairy farmers

10:08 am on 24 October 2012

An agricultural consultant predicts some dairy farmers with high debt levels will go bust in the next two years.

A Ministry for Primary Industries analysis of a model dairy farm shows that income from milk payments will fall 20% this season.

That will result in a pre-tax profit slump of about 57%, compared with the past season.

Phil Journeaux, an AgFirst consultant who worked on the analysis, says the average dairy farm will make a loss this year and unless milk prices pick up in the 2013-14 season, some won't survive.

"My expectation is that ... most of them will come through this year, in the sense that the banks will carry them through in expectation of improvement in payout for the 2013-14 year.

"The big danger is if we have another say $5-odd payout in 2013-14, those highly indebted farmers - I suspect quite a number of them - the wheels will fall off."

Mr Journeaux says dairy farmers need a $6 a kilogram milk payout on average to break even. Fonterra's current forecast is $5.25.

Federated Farmers says the income loss equates to about $1 billion overall.

President Bruce Wills told Radio New Zealand's Morning Report programme farmers have had a good year, but most will have hefty provisional tax payments next year and will have to keep a tight rein on budgets to make it through.