6 Aug 2015

Sharemilkers starting to feel price pinch

2:58 pm on 6 August 2015

The dairy price slump is starting to drive sharemilkers out of business.

Calves on a Waikato dairy farm.

Federated Farmers' Chris Lewis: "This has the potential to cause a lot of issues for the youngest and smartest of our industry." Photo: AFP

Sharemilkers, who own their herds but run them on other people's farms, are among those most vulnerable to the effect of low milk prices.

Yesterday, Federated Farmers dairy chair Andrew Hoggard said he had heard reports of some sharemilkers being put into receivership, especially in Waikato.

Federated Farmers' Waikato president, Chris Lewis, said he was getting similar reports.

"I've heard first-hand from my elected representatives in the Waikato that they've come across situations where the sharemilker may have to have a managed exit because of cash flow problems," he said.

"This may have to happen in the next few months because - at the moment - the mounting debts, the lack of support from their financiers is not helping their situation, and probably the biggest issue is cash flow.

"When your payout's cut by half and it's half of what is economic to produce and you've got a young business with very little capital behind you, this has the potential to cause a lot of issues for the youngest and smartest of our industry."

Mr Lewis said a managed exit was not a receivership in the legal sense.

"It's more of a case where they've sat down with the bankers and they've said, we may not support you anymore, give you any more line of credit

"And then they've sat down with their accountants and support people and they've come up with a plan that the best situation is probably to exit, under controlled circumstances."

Mr Lewis said the mood of dairy farmers took a sudden dive a couple of weeks ago when the second biggest processor, Open Country Dairy, revised its milk payout forecast to below $4 per kilo of milk solids.

"Then it was like a light switch went on, conversations changed, farmers' moods definitely changed."

Farmers are expecting Fonterra to announce a deep cut in its $5.25 per kilo milk price tomorrow.

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