Finance Minister Bill English says dairy prices will never reach $8 a kilogram again, but he is confident farmers will get through a drop in payouts and rising debt levels without Government intervention.

Mr English was asked in the Finance and Expenditure Committee this morning about recent reports by Australian banks who were concerned about a third straight year of low dairy returns and their impact on New Zealand farmers' debt.

The minister said to reporters after the committee that he expected banks to be assessing their risk, as they would with any sector which was forecast to make cash losses for three years in a row.

Dairy farmers had expected a shorter, less pronounced dip in payouts, and were becoming concerned now that the drop was more prolonged.


"It looks like the payout is going to be lower for longer, so it's likely people are re-doing their growth budgets on the farms and the bank's probably having a look at those small number of farmers who are under some real pressure."

The price per kilogram of milksolids had fallen from what were unrealistic highs, Mr English said.

He did not expect the payout to ever return to $8 because other countries noticed the high price and were able to produce milk "more quickly than we can imagine".

Mr English was unsure whether it was the worst slump since the 1980s, as some commentators had observed, but he said it had "certainly been a big drop".

The Government would not take any steps to relieve the pressure on farmers. Mr English said the sector had a strong balance sheet and had built up capacity to carry losses.

"While the pressure seems to be growing for now, we're pretty confident that between the banks and the farmers, they can get through it."

He was also not overly concerned about its broader impact. The dairy price did not "set the direction" for the economy, and its fall coincided with growth in other sectors, in particular tourism.

Mr English also said today that he could not rule out bringing Government spending forward to cope with high migration numbers in New Zealand.


The large number of arrivals were driving up demand for core public services. At present, the greatest pressure from population growth was on education services but it was also expected to flow on to the health sector.

Migration inflows hit record highs last year, with an annual net gain of 65,000 people in the year to December.

Labour's finance spokesman Grant Robertson accused Mr English of being too relaxed in the face of economic warning signs overseas.

He said the minister appeared to be "unfazed" about Australian banks' concerns.

"Bill English is being far too complacent," he said. "When asked about the falling international stockmarkets, plunging dairy prices, zero per cent per capita growth, Mr English was way too relaxed."

Mr Robertson said National needed to bring forward infrastructure projects and diversify the economy away from dairy and the Auckland housing market.