Carmen is a social issues and rural reporter at the Bay of Plenty Times

Dairy slump costs Bay of Plenty $400 million

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Andrew McLeod.
Andrew McLeod.

More than $400 million has been wiped from the Bay of Plenty economy due to the slump in the dairy sector - and another $57 million is predicted to be lost after Fonterra's last forecast, figures show.

One Te Puke farmer told the Bay of Plenty Times he had to slice $72,000 off his budget, which was already in the red following Fonterra's announcement while another did not know how long he could operate at a loss.

Industry leaders also predicted that ongoing hardships, challenges and sheer exhaustion could create an exodus from farms although the banks had expressed confidence, "and are supporting our customers in this low commodity price period".

Read more: Tauranga's debt set to jump next year

Figures from Dairy NZ show when Fonterra slashed its forecast in January from $4.60 per kilogram of milk solids to $4.15 the region's economy was set to earn $57 million less for the 2015/16 season.

In 2013/14 milk production in the Bay contributed $1.067 billion to the economy but in 2014/15 that had fallen to $599m even though the number of herds increased from 920 to 927 over the same period.

We were already in the red so we will just have to go back to the bank and borrow more.
Steve Bailey, Federated Farmers Bay of Plenty dairy chairman

Its economics team said most dairy farmers in the region would be carrying some form of debt while data revealed total milk production for the season was expected to be down by about 3 per cent.

Federated Farmers Bay of Plenty dairy chairman Steve Bailey believed some farmers would not make it through and "it all depends on their debt loading", but most would ride out the storm.

He had revised his budget by tens of thousands to fit Fonterra's forecast.

"That is a serious amount of size when we weren't making $72,000 in profit. We were already in the red so we will just have to go back to the bank and borrow more."

Welcome Bay dairy farmer Andrew McLeod said he had trimmed every cost he could including not replacing a staff member but he was running at a loss this season.

"If this payout goes on longer I am not sure where that will leave us. While we would like to think there is a good future in the industry, it's really hard to forecast where it's going at the moment."

Katikati dairy farmer Allan Williams said he was not carrying any debt.

Some farmers thought I should have splashed out on more land but I am really pleased that I didn't, he said.

Katikati dairy farmer Allan Williams
Katikati dairy farmer Allan Williams

In his view the management of Fonterra had an, "awful lot to answer for".

Federated Farmers Rotorua/Taupo provincial president Alan Wills said the full effects had not impacted yet but the Bay had benefited from "a very kind summer", and grass growth.

ANZ external communications senior manager Stefan Herrick said banks were having conversations with their farmer customers about how they can adjust their business models, farm systems and cost structures to get through.

"It's tough for people out there. A positive attitude and willingness to ask for help and plan are important."

Rabobank northern North Island regional manager Bruce Weir said it was a cyclical downturn and prices would recover.

Read more: Inside Story: Making the move from Aussie to NZ

"For us it is a matter of working closely with our customers to ensure they are viable ... it's a great opportunity for us to add value."

The latest Reserve Bank statistics showed dairy farm debt now stood at $37.9 billion, compared with $30 billion five years ago.

A Federated Farmers' poll showed that 11.1 per cent of dairy farmers were under scrutiny by their banks, compared with 7.6 per cent in November and 6.6 per cent in August.

Yesterday, Fonterra announced it had met with staff at its Kaikoura site in the South Island with a proposal to permanently close the plant.

While dairy is down, at the moment kiwifruit is up, the port and manufacturing are going well so the dairy downturn will not have a detrimental effect on our economy.
Stuart Crosby, Tauranga mayor

Its New Zealand manufacturing director Mark Leslie said moving production to other sites would bring significant cost savings for the business and its 10,500 farmer shareholders.

Tauranga Mayor Stuart Crosby said because Tauranga and the rural economy were linked, a downturn in the dairy industry had an impact on businesses in the city.

Service industries that supply the dairy industry would find it tough, he said.

"That's anything from motorcycles to tractors, fertilisers, things like that, that a farmer might look to reduce on to cut costs and so some of those businesses have reduced as a result of the dairy payout."

However, Tauranga was quite lucky in that it had a diverse economy, he said.

"While dairy is down, at the moment kiwifruit is up, the port and manufacturing are going well so the dairy downturn will not have a detrimental effect on our economy but we do need to acknowledge it and be aware of it," he said.

Tauranga Chamber of Commerce chief executive Stan Gregec said the Bay of Plenty as a whole would be significantly affected by the dairy situation.

"It's not great news for those people directly involved or supplying the dairy sector.

"However, Tauranga and the Western Bay are less exposed, as there are many other positive things happening in the local economy at the moment, and confidence still remains high in virtually every other sector."

Bay Dairy Stats 2014/15:

* $599 million value of milk production to economy

* 3158 people employed in dairy industry

* 927 herds

* 345,588 milking cows

* 652 farm owners/operators

Source: Dairy NZ

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