For Northland farm supplier Grant Whyte, the drop in dairy prices has been impossible to miss. Dairy farmers, he said, had "disappeared " from his shop, which has been going for 35 years.

"It is unbelievable how things have changed but it's what I would do in the same circumstances - stop all spending," said Whyte, the owner-director of Fencing Services in Whangarei.

Rural service towns are already feeling the pinch, and farmers at the sharp end of the dairy market - new entrants and sharemilkers - are most likely to feel the brunt of this week's drop in Fonterra's farmgate milk price forecast.

"It's extremely tough right now for farmers - some more than others," said Tim Mackle, chief executive of Dairy NZ.


He said farmers' ability to survive the downturn would depend on the size of their debt and the level of their costs. "Sharemilkers are one of the very vulnerable groups."

DairyNZ has been holding meetings to advise farmers on cost reduction, and to provide other support.

Federated Farmers Waikato provincial president Chris Lewis, who has an 1150-cow farm in the province, said some farmers might be looking at throwing in the towel.

"I'm sure younger sharemilkers are having that discussion around the table at the moment," he said. "For farm owners, it's probably getting a bit late in the season to make a rushed sale, so they will be having deliberations with their banks and may be considering a spring sale.

"Most of us will come out of this a bit hurt, but we will survive and live to see another day, but it will take us a couple of years to climb out of this," Lewis said. "For some there will be misery, and every casualty is one too many, but that's going to be the reality."

Lewis, an Open Country Dairy supplier, said Fonterra had been unfairly singled out for flak after reducing its milk price to $3.90, from $4.15 a kg.

He said all companies were in the same boat.

Open Country, New Zealand's second-biggest milk processor after Fonterra, has revised its forecast down sharply. The company, which is 69 per cent owned by the food company Talleys Group, has forecast a farmgate milk price for 2015-16 of $3.65 to $3.95 a kg of milksolids.

In January, Westland Milk, the secon- biggest co-operative, cut its predicted payout of $4.15-$4.45 a kg of milksolids. Waikato's Tatua is also understood to have reduced its milk price.

Craig Littin, who owns and leases one farm with 700 cows and share milks a further 500 cows at Lichfield, said the current payout had created a tough climate for people, especially the new entrants who had bought cows or farms in the past 12 to 18 months.

"With our business we are spending a lot of time crunching numbers," he said. "We are trying to stick with our contractual agreements regarding companies such as the feed suppliers.

"Although times are tough, it is also an opportunity to set your business up to perform when things do come right."

Littin's operation is a relatively intensive "Grade 4" farm, where 25 to 30 per cent of feed is brought in.

"Everybody knows that it is tough, especially when we are dealing with suppliers. If everyone takes a little bit of pain, everyone will get through.

"Fonterra can't be blamed for the current market pricing," he said. "I really hope that dairy farmers don't whinge and that we take accountability for ourselves."

Ben Moore - who is in his first year of owning 45ha and leasing a further 100ha near Tirau - is a new farm owner.

"Some people's debt levels are worse than others but I'm 29, so I have youth on my side, and I have got a bloody good support network around me, including my landlord," Moore said. "We might be looking down the wrong end of a barrel, but everyone is in the same boat."

Towns such as Morrinsville, in the heart of prime dairy country in the Waikato, are already feeling the pinch.

"This last week has been a bit of a shock to everybody," said Nigel McWilliam, chairman of the Morrinsville Chamber of Commerce. "Twenty-five cents [drop in the forecast] means that there will be a lot of rejigging of cashflows. From a revenue perspective, farmers have stopped spending in town and that's understandable, so our businesses are under a bit of pressure."

Whyte said that while commercial activity in the town seemed quieter than usual, there was at least one saving grace - the El Nino-induced drought had not eventuated and growing conditions were favourable,