Finance Minister Bill English said he expected farm prices to drop after Fonterra's announcement yesterday of a cut in its farmgate milk price forecast for 2015/6 but said he was confident the industry and the banks would "find their way through" the dairy downturn.
"They are going to see the land values drop - I think that is pretty much certain," he said in an interview with RNZ. "But I think that between the industry and the banks they will be able to find their way through it," he said.
Fonterra on Tuesday cut its farmgate milk price to $3.90 per kg from a previous forecast of $4.15 - well below the average cost of production of $5.25 a kg.
English, asked if he could rule out government assistance for cash-strapped farmers, said: "We are ruling out bailouts and backing of loans but we will be working with the Rural Support Trust and will be continuing with and probably increasing support around the science and innovation side," he said.
He said the industry was going to be under pressure. "It is going to rediscover its comparative advantages which are around the cost of production and its ability to solve problems - its adaptability," he said.
"I don't think that there is any doubt that this is an industry where they have had a focus on growing equity and growing land values for quite a long time now and this is going to be a significant adjustment in getting back to the core business now of effective farming for cash flow," English said.