'Lower prices not sustainable' say Fonterra

Yesterday, Fonterra - New Zealand's biggest exporter - announced its forecast total payout available to farmers in the 2015/16 season would be $4.25-$4.35 a kg. Photo / Christine Cornege

Dairy giant Fonterra's chief executive says the lower milk prices announced this week were not sustainable for Kiwi farmers, although they could cope with some volatility.

Yesterday, Fonterra - New Zealand's biggest exporter - announced its forecast total payout available to farmers in the 2015/16 season would be $4.25-$4.35 a kg, comprising the farm gate milk price $3.85 per kilogram of milk solids and a forecast earnings per share range of 40 to 50 cents a share.

The co-op raised its dividend forecast for the year and slashed its capital expenditure by $500-$600 million.

Speaking to TV3's The Nation, Fonterra's chief executive Theo Spierings admitted it was a serious situation.

"[This] is not sustainable, the milk price now is absolutely not sustainable... this is going to be a bumpy ride for another six to 12 months just to make sure that we get through it with minimum damage and [come out] as strong as possible.

"But when you see other parts of the world where cost prices are much higher, that's even more difficult a situation for farmers."

Mr Spierings said he could not say how many farmers were going to make a loss, but did call the level of $3.85 "below the bottom".

"So this is absolutely not sustainable and we are on a very low level, below the bottom in my opinion.

"This huge volatility is something we have to live with , [but] I think that New Zealand farmers and the farming system have proven over time that we can cope with volatility."

Meanwhile, the Government was confident the outlook for the dairy industry was bright for 2016 and beyond.

Primary Industries Minister Nathan Guy said Kiwi farmers were facing a tough time, but they would get through it.

He said the Government would do what it could to offer them support.

"They know it will be a really tough time, it's great to see that Fonterra are offering the interest free loan to get them out of the trough and through the other side."

However, Labour MP Grant Robertson said these were serious times for the dairy industry.

He noted the pay-out figure was much lower than $5.70, which was considered the break-even proposition for farmers.

"What we've been told is that two years below break even will push 10-20 per cent of farmers close to the wall.

"Particularly including share milkers in that who are in high debt as well."