A payout to farmers for milk below $5 could knock nearly $6 billion out of the New Zealand economy, a rural economist warns.
At this week's global dairy auction the key product for dairy giant Fonterra, whole milk powder, fell by more than 5 percent from $US122 to $US2400.
Fonterra has said the price of that powder needs to rise to about $US3500 by March next year if is to maintain its forecast payout to farmers of $5.30 per kilo of milk solids.
ANZ agri-economist Con Williams said if the forecast price dropped to $4.85, the hit to the economy when compared with last season's record $8.40 payout would be $5.75 billion.
Fonterra has said it would revise its forecast payout next month.
ASB Bank has forecast that the payout would be $4.70.