Milk decline hurts all, say farmers

GOING SOUR: Slashes to Fonterra's forecast milk payout will hurt Wairarapa's economy, say farming leaders.PHOTOS/FILE

Fonterra has slashed its forecast milk payout to $3.85 per kilogram of milk solids, a move that will "hurt everyone", say Wairarapa farming leaders.

New Zealand's biggest exporter has dramatically reduced its milk prices for 2015/6, citing a significant imbalance in the global dairy market, which it said showed weak demand and too much supply.

The lower farmgate milk price follows sharp falls in wholemilk powder prices, which have plummeted by 51.4 per cent on Fonterra's GlobalDairyTrade platform since March.

Federated Farmers Wairarapa dairy chairman Chris Engel said the payout was lower than expected.

"It's going to hurt everyone."

Farmers were working to reduce costs but things like power and veterinary charges had not changed, he said.

"Everyone is at 2015 costs now - those are things you can't get out of."

Dairy farmers, Mr Engel said, were "still requiring total support from the banks".

"We've just got to hope they see the long-term, positive side [of] staying in there."

Mr Engel said farmers were not giving up.

"We've got to still get up in the morning and carry on - but it's going to be tough.

"We make a highly valued product ... We've just got to weather this perfect storm."

Federated Farmers Wairarapa president Jamie Falloon said the lowered prices would "take a massive amount of money out of the local economy".

"It's going to be bloody tough but people had seen it coming."

Dairy farmers were taking whatever steps they could to deal with it, he said.

"You only spend what you have to to look after your animals and run your farm ... but you still have to manage animal welfare and production and you defer any capital expenditure that you can get away with."

Farmers would always face the same challenges no matter what the payout was.

"The opportunity out of this is that it really makes people look at their systems and how to produce at a profitable level," said Mr Falloon.

"When you get through this one you'll have a much more cost-efficient farming system, so you can take advantage of the upward swings in price when they come back up."

With Fonterra forecasting earnings of 40-50 cents a share, the total forecast payment to farmers for the 2015/16 season is now $4.25-$4.35.

Mr Engel said Fonterra's extra shareholder payout offer would be "very beneficial" but would not help all farmers.

"That's if you are shared up - others have sold shares in other business decisions."