Federated Farmers is warning Fonterra's lower than expected opening milk payout forecast will strip millions of dollars from the economy.
The dairy co-operative has announced an opening price of $4.55 per kg of milk solids for the 2009-2010 season, which begins next week.
The figure is 65 cents below the $5.20 forecast payout for the current season.
Federated Farmers dairy chairman Lachlan McKenzie says the figures represent $780 million less in farm incomes than forecast for the current season.
Mr McKenzie says the forecast is a serious wake-up call for the Government and councils to curb their spending and cut the costs he says have been forced on to farmers.
Fonterra Shareholders Council chairman, Blue Read, says farmers are hoping that exchange rate and international trading conditions will improve so that the company can lift the payout later in the year.
But he says at the opening level, with an advance payment of only $2.90 a km, many farmers will not have the income to pay their debts.
Shares down also
As well as the drop in its payout forecast, Fonterra has lowered its share value by more than $1 to $4.52.
The fair value share establishes the price farmers have to pay to buy the shares to match their milk supply.
Mr Read says that is not a surprise as it is in line with what Fonterra was forecasting.
He says it will provide relief to some farmers but hurt others.