A 45 cents drop in the latest farmgate milk price forecast will slash more than $76 million from the Northland economy.
Fonterra has cut its farmgate milk price forecast for the 2015/16 season to $4.15 per kg of milksolids from a previous forecast of $4.60 a kg in response to weak international prices.
Combined with the earnings per share range of 45-55 cents, the total available for payout of $4.60-$4.70 per kg would currently equate to a forecast cash payout of $4.50-$4.55 per kg for farmers. A payout of $4.15 would earn Northland dairy farmers $373.5 million while $5 will rake in about $450 million based on the roughly 90 million kg of milk solids produced in the region.
Fonterra chairman John Wilson said the key factors driving dairy demand were declining international oil prices, which have weakened the spending power of countries reliant on oil revenues, economic uncertainty in developing economies and a slow recovery of dairy imports into China. In addition, he said the Russian ban on European Union dairy imports continued to push more product on to the world market. Mr Wilson said since last September, prices on GlobalDairyTrade for whole milk powder have fallen 12 per cent, and skim milk powder down 8 per cent.
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Far North farmer Ian Walker, president of Farmers of New Zealand, has called on the Fonterra board and its chief executive to make way for people with appropriate skills to manage the company.
"It's inexcusable for the Fonterra senior management to keep talking up the market for dairy when the fact is it's the most unsound business in the country."
Mr Walker said a bloated Fonterra board with 13 members comprising mostly of successful farmers, bankers, and academics needed to be trimmed down to seven with expertise in engineering, international marketing, and global manufacturing.
Northland MP and New Zealand First MP, Winston Peters, said lower dairy prices have been clear for some time, yet the Government had done less than nothing to help provincial areas which are the foundation of our export wealth.
"The solution always was to focus on exporting dairy products, not at the minimum added value but maximum added value, such as the infant formula industry which in less than three years has slipped from New Zealand to Chinese control ... it is the offshore partner creaming the added value now. An unstable NZ dollar has not helped."