North farmers take $330m hit

Maungakaramea share milker Mohammed Jamal says a lower-than-expected dairy payout means spending on essential items such as fertiliser and supplementary feed will have to be minimised. Photo / John Stone

A substantial drop in the dairy payout has slashed $330 million from Northland's economy and could force some dairy farmers out of business.

Fonterra this week announced a forecast price of $4.70 per kg of milk solid from a previous estimate of $5.30 - the lowest payout since 2006. It would mean a staggering $330 million loss to Northland dairy farmers.

At $4.70, they will earn $419 million compared with $748 million at the $8.40 payout they received during the 2013/14 season which was a record high and 37 per cent higher than the previous season. The last time farmers received a lower price than $4.70 was $3.87 in 2006/07.

Federated Farmers Northland dairy chairman, Ashley Cullen, said the latest forecast price was the "straw that broke the camel's back" for some farmers.

"It could tip some over unfortunately, especially the older farmers who have been sitting on the fence and thinking whether they keep going or do they go into beef because beef prices are rising," he said.

Mr Cullen milks 200 cows in Maungaturoto and says he will lose just under $200,000 from the latest forecast price.

"Farmers will have to seriously look at their budgets and debt levels and may defer a lot of stuff or can them altogether because it's not just this year they have to think about but part-way next year and winter and spring will be a crunch time."

He said Northland dairy farmers had expected a reduced payout of between $4.80 and $4.85 but the current forecast would have a trickle-on effect on other businesses. Mr Cullen said there was no guarantee the forecast price wouldn't dip below $4.70.

Factors like Russia and China buying less milk from Fonterra meant a reduction in prices for New Zealand dairy farmers, he said.

Maungakaramea share milker Mohammed Jamal said a substantially lower than expected price meant purchase of essential items such as fertiliser and supplementary feed would have to be minimised.

"It also means we can't spend more on capital works next year and we just have to be very frugal in how we spend money."

Northland Rural Support Trust secretary/co-ordinator Julie Jonker has urged the region's dairy farmers struggling after a lower-than-expected milk payment and several summers of drought to seek help early from appropriate agencies such as their banks, Inland Revenue Department, accountants and other financial advisers.

"Northland is the most vulnerable with lower milk prices because of the size of its primary industries and what they lose through lower payments is their actual profit margin which they survive on," Ms Jonker said.

She said the lower price could have a huge impact on Northland's economy in general and that affected farmers would try and cut back on costs in order to survive.

DairyNZ chief executive Tim Mackle said the main areas where farmers may make cuts could be repairs and maintenance, feed management and off-farm grazing costs.

Milk prices were not expected 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."

Dairy farmers nationally would lose $6.8 billion in revenue with the current forecast pay compared with the $8.40 per kg they received last year.