Bay farmers facing $126m cut

Fonterra's $6 forecast milk price will cost Bay of Plenty dairy farmers $126 million - more than last year's $74 million drought - and leaders warn the economic fallout will be felt across the region.

Federated Farmers Bay of Plenty dairy chairman Steve Bailey expected his dairy shed income to drop 25 per cent.

The lower 2014/15 kgMS forecast would have a big impact as farmers tightened their belts and stopped spending, he said

"We had a big payout last year and if you drop that by $2 it's a significant amount of money that is not being spent in the Bay."

New tractors and capital works would go by the wayside and associated contractors or businesses reliant on the agriculture sector would feel the brunt, he said.

Chamber of Commerce chief executive Dave Burnett said the New Zealand economy was driven by agriculture and there would be a ripple effect from the regions into the cities.

Farmers would close their wallets, he said.

"It's a big decrease and a substantial reduction on what farmers have been used to when it was $8.40. The new season only started on June 1 so even though farmers are still receiving higher payouts as they adjust there will be less spent on capital equipment and general farm maintenance."

Te Puke company Bradstreet Contractors lost $450,000 during the drought and it had not yet clawed that back.

Owner Peter Bradstreet said he bought new equipment this year, including a new tractor, and time would tell if that was a wise decision.

"It's a guessing game all the way through and a big call whether it's going to be worth it, you just hope it's not going to fall over because you are spending hundreds of thousands of dollars."

DairyNZ chief executive Tim Mackle said volatility was part of everyday life and dairy farmers would be conservative when making farm decisions this season.

Federated Farmers dairy chairman Andrew Hoggard said farmers would have to cut their cloth accordingly and watch costs closely.

DairyNZ economists estimate the reduced payout could cut national income by $1.8 billion this dairy season - an average per farm loss of about $150,000. The Bay of Plenty was expected to lose $126 million.