Farmers brace for dairy price hit

Gutting, is how some Bay farmers have described the latest slash in Fonterra's forecast payout, which will cost the region $177 million and put jobs under threat.

The dairy giant yesterday cut its Farmgate Milk Price forecast from $5.25kg milk solids to $3.85kg milk solids due to "the continued significant imbalance in the global dairy market between weak demand and surplus supply."

Chairman John Wilson said the challenge of lower prices continuing for longer than anticipated was a global issue, which "dairy farmers around the world are increasingly grappling with."

However, Pukehina dairy farmer Trudy Williams said the full impact was not going to be seen yet and "some of us will get through it and some of us won't".

"It's gutting really," the contract milker said and although farmers were a resilient bunch, "we are only human".

She knew of employees who had already lost their positions and predicted there would be more to go.

"It's pretty scary because some will be really concerned on how they are going to feed their families. You know you cut back your personal costs as much as you can before it affects the staff."

Financial stress was known to take its toll on everyone but she thought men felt it more.

"They feel a lot more responsible in providing for their families while a lot of women are able to recognise when things are getting a bit tough for them."

Rural Support Trust Bay of Plenty chairman Derek Spratt said the forecast was not a surprise but very depressing.

"It's actually quite a worry."

There were some farmers that have had nil payout or income for the last two months and a high percentage would be reliant on the banks to get them through, he said.

"They have got to try and cut costs where they can without sacrificing animal welfare and that may well mean getting rid of any unproductive cows. "Sometimes reducing the number of your stock on your milking platform can increase production."

Mr Spratt urged farmers to contact the trust if they needed any help help or advice as "it's going to be a long struggle".

Federated Farmers Bay of Plenty provincial president Rick Powdrell said there would be a significant amount of money lost in the community.

"Money not coming into dairy farmers' pockets is money that is not going into the community."

Unfortunately a lot of dairy farms were also highly indebted, he said, and those farmers would feel the crunch.

"It will be the newer sharemilkers, more recent conversions and of course some dairy farmers that are debt loaded. Those guys will certainly have some pressure on them ... hopefully the banks will take a sound approach."

Federated Farmers Bay of Plenty dairy chairman Steve Bailey said there would be some farmers that would not be farming next season.

"It will be big but there will be others that do cope ... we just need to ride out the storm."

Meanwhile, some farmers that had employed people in the past, "have put their gumboots back on and gone back into the shed because they don't have the money to pay people".

DairyNZ chief executive Tim Mackle said the drop meant a further reduction of $150,000 for the average dairy farm income for this season.

"The effect on the level of payments over a season will keep farmers' cash income constrained for at least the next 18 months and it will take some farmers many years to recover from these low milk prices."

"We will bounce back - but it may take some time, so other sectors will need to step up to help our economy - and that will help us all get through this together."

Dairy NZ Economic Group has also indicated up to a 3 per cent drop in production this season as farmers tighten the focus on the efficiency of their farming systems.

In 2013/14, diary contributed $1 billion to the Bay of Plenty economy while diary jobs made up two per cent of employment.

Regional impacts of reduced milk price
The estimated drop in farmer income ($5.25 down to $3.85 milk price)*:
- Bay of Plenty: $177 million
- Northland: $143 million
- Waikato: $692 million
- Taranaki: $259 million
- Hawke's Bay: $24 million
- Manawatu: $113 million
- Wairarapa/Wellington: $86 million
- Tasman/Marlborough: $50 million
- Canterbury: $494 million
- Otago: $134 million
- Southland: $313 million
- New Zealand: $2.5 billion
*Based on $1.40 drop multiplied against estimated regional production.

- Dairy NZ