Dairy farmers endure lowest pay

TIGHT TIMES: Chris Engel says dairy farmers will need bank support just to pay the bills this winter, and they will have no discretionary spending. PHOTO/LYNDA FERINGA

Dairy farmers are coping with their lowest pay cheques ever this winter, with major flow-on effects for the region, says Federated Farmers Wairarapa dairy chairman Chris Engel.

From July to August, dairy farmers normally receive deferred payment cheques from last year's milk, which "keeps you going till your new season kicks in".

These payments are normally "good healthy cheques" of up to 80 cents per kilogram of milk solids.

This year, the payment for July was zero, which means "if you're not milking you get nothing".

For August, "we had [an extra] 30 cents on our budgets, and then [Fonterra] lowered it to 5 cents, saying 'we paid you 25 cents too much last year'," Mr Engel said.

The September deferred payment is again zero, and the payment for October is again 5 cents.

"Farmers have never received such low income," Mr Engel said.

"Because they're needing the banks' assistance to just continue at fixed expenses, you can't do any more.

"It's going to have big, big effects in town."

Last August, Mr Engel had said it would be good if the dairy payout stabilised around $7, after a drop to $6.

The current forecast is $5.25.

That amount, however, is "at the very end of next season, with dividends".

The advance this month is just $3.66 per kilogram, whereas last year's was closer to $5.

Farmers are closing their chequebooks based on the principle that "if you haven't earned it, you can't spend it", Mr Engel said.

"We've got budgets - I've got mine in my pocket, and if it's not in your budget you don't buyit."

Mr Engel said the cash restriction would eventually reach New Zealand's cities also.

"It takes a couple of years to reach the cities, but it does."

Becoming "very conscious" of every cent spent, Mr Engel said he found "it's amazing how many people one farm supports".

He said many dairy expenses were not for immediate gain, but "for tomorrow".

These include fertiliser, artificial breeding costs, and irrigation.

"It's quite a fine line to cut costs and not jeopardise the future ... people are having to make hard decisions."

A major expense for dairy farms is supplementary feed, which is a change from "the old days" when cattle weren't fed as much.

Mr Engel said he was in the position where "I can go back to grass again, or more grass - that's still the cheapest feed".

Some farmers, however, had been putting American genetics into their herds, which meant bigger animals which needed the supplementary input.

Mr Engel said even labour costs were being watched week-to-week, although "you've got to have a certain amount of staff.

"Anyone who thought they were retired is back in action ... I guess that's the strength of the family farm - I don't know how the corporates are going to geton."

As Fonterra trims 530 staff in an effort to remain viable, Mr Engel said the question must arise, "How come they were there to start with?

"That's a bit of a chomp. "Someone approved them, the business is still there, [but] somehow we don't need themnow."

Mr Engel said a lower payout was usually balanced somewhat by a higher dividend, but this year farmers faced "a double whammy" with drops in pay cheques, compounded by three months of little rain.

This year, even world political events had influenced dairy prices in a new way, Mr Engelsaid.

"I've never believed that [Russian President Vladimir] Putin would affect me."

He was referring to the Russian boycott of EU milk, in response to EU sanctions against Russia sparked by the Ukraine crisis.

The result was more milk from the EU in the global market "which competes with me", Mr Engel said.

Federated Farmers Wairarapa chairman Jamie Falloon said on the positive side, a lower dollar and hopes of falling interest rates would ease the situation somewhat.

But it would "be really challenging", he said.