25 Sep 2014

Lower payout costly for regions

5:45 am on 25 September 2014

The latest drop in Fonterra's forecast milk price will deprive regional economies of more than $1 billion, if it stands.

That is what industry body Dairy NZ has calculated, based on estimated milk production in dairying regions for the past season.

Dairy NZ estimates that farmer incomes in Waikato would fall by $293.8 million.

Dairy NZ estimates that farmer incomes in Waikato would fall by $293.8 million. Photo: PHOTO NZ

Fonterra's revised farmgate milk price of $5.30 per kilo of milk solids is now 70 cents below where it sat until yesterday.

But Dairy NZ is basing its calculations on a 60 cents a kilo drop because Fonterra is also forecasting an increase in the dividend payment.

On that basis, it figures that farmer incomes in the biggest dairying region, Waikato, would fall by $293.8 million, while Canterbury, the second largest dairy region, would miss out on $213.8 million.

Dairy NZ calculates Southland's loss at more than $132 million and puts the impact on Taranaki at over $111 million.

But with two-thirds of the current season still to go and world dairy markets and prices being as volatile as they are, the latest milk price is unlikely to be the final payout. Some economists are predicting that it has further to fall.

Looking back on last season, Fonterra says its record $8.40 farmgate milk price injected more than $130 billion into the national economy.

Meanwhile, the executive director of investment company MyFarm says many heavily-indebted farmers could be in trouble with the current forecast payout.

Grant Rowan said it is important that they contact their bank managers, as many could be making losses at the $5.30 mark.

Mr Rowan said the dairy industry is heading for a downturn, but believed this would be short-lived.

Get the new RNZ app

for ad-free news and current affairs