Fonterra cut to hit quarter of dairy farmers hard

Photo / Sarah Ivey

The industry group DairyNZ estimates that one quarter of dairy farmers will have difficulty paying their bills without incurring more debt if Fonterra's reduced farmgate milk price comes to pass.

The farmer-funded DairyNZ said the drop in Fonterra's forecast milk price for the 2014/15 season to $4.70, from its previous forecast of $5.30, would test dairy farmers.

"We've calculated that around a quarter of dairy farmers are facing some business risk this season at the $4.70 milk price," DairyNZ's chief executive Tim Mackle said. "That means they will have difficulty meeting their interest payments, rent and farm working expenses without incurring more debt," he said in a statement.

While managing in a low payout year is nothing new for many farmers, the $4.70 milk price would be one of the lowest in the past six years.

"We expect farmers will have to apply more thinking and planning around cash flow and business management decisions as a result of this latest forecast," Mackle said.

Around 86 per cent of milk produced in New Zealand comes from Fonterra farmers.

The main areas where farmers might make cuts could be repairs and maintenance this autumn and capital expenditure.

Feed management decisions would need careful planning to ensure cows were in good condition for calving next year.

Another area that would require close scrutiny was off-farm grazing costs for 2015.

Mackle said a high level of retrospective payments from Fonterra over this past winter - reflecting a record milk price last year - had been crucial in boosting the total milk income for most farmers for 2014/15.

But he said the 2015/16 season would be the "crunch" financially for many.

"We don't expect milk prices to recover in the first half of 2015," he said. "So the start of the season next year in June will be when things could get really tough for farmers and they'll need a robust plan that includes some practical and useful tactics up their sleeve to cope financially," Mackle said.

Read Fonterra's latest media release here: