Belt-tightening as agriculture faces doldrums

By PHILIPPA STEVENSON agriculture editor

Fonterra dairy farmers are about to bank the last cheque of the boom times.

The giant dairy co-op came clean yesterday on the magnitude of coming doldrums.

At the same time, the Ministry of Agriculture and Forestry reported sliding incomes in all agricultural sectors.

It said the income drop would be felt first in rural towns, but would eventually spread to the rest of the economy.

Its annual farm monitoring report predicts average farm revenue will drop 18 per cent this financial year.

Fonterra cut about $334 million from its payout forecast for the year to next May when it downgraded the likely return to its 13,000 farmers for the 2002-03 season from $4 to $3.70 a kilogram of milk solids.

That equates to a fall in income of around $40,000 for the average farm milking 251 cows.

The bad news went out by letter to farmers at the weekend.

Dairy Farmers of New Zealand president Kevin Wooding said the impact would be dramatic in small towns.

But farmers were used to the cyclical nature of the industry and were "good at tightening their belts".

"What concerns us is how the sharemilkers, the new farmers, and anyone who has increased the size of their holdings over the last few years is going to cope."

Farmers will bank the last payment from the good times next month, ending two years of prosperity driven by good climate, good commodity prices and a favourable exchange rate.

Fonterra said the two-month-old $4 forecast assumed a recovery in commodity prices towards the end of this year and an exchange rate of 45NZc to the US dollar.

"Since that forecast, the exchange rate has continued to rise and the European Commission last week announced yet another increase to the restitution payments used to subsidise dairy exports," the company told farmers.

"This will force international dairy prices still lower, so we must revise our payout forecast down further.

"Our best estimate of the payout forecast for the 2002-03 season is now $3.70 per kilogram of milk solids."

It is Fonterra's second estimate reduction this year. It pegged the payout at $4.50 in February, then cut it to $4 in May because of global market trends.

The ministry's report confirmed the grim news for dairy farmers, and added dismal outlooks for sheep, beef, deer and arable farmers.

Only horticulture is looking up. Its export earnings are expected to pass $2 billion this year, and the growth seems likely to continue.

The ministry said average dairy farm revenue was forecast to drop 18 per cent in this financial year.

Last year, it rose 15 per cent on the year before.

Sheep and beef farms last year also had the highest level of income for at least 20 years, but can expect a 15 per cent drop in the price of finished cattle and a 9 per cent drop in prime lamb values this year.