Dairy slump will hit regional economy

TOUGH TIMES: Mamaku-based sharemilker John Butterworth says the short term is not looking good for local dairy farmers and sharemilkers, but they have to keep a positive mindset. PHOTO/BEN FRASER

More than $400 million has been wiped from the Bay of Plenty economy due to the slump in the dairy sector - and another $89 million is now predicted to be lost, figures reveal.

Farmers in the Rotorua region are bracing for a tough winter with dairy payout forecasts showing little relief.

Figures from Dairy NZ show when Fonterra slashed its forecast in January from $4.60 per kg of milk solids to $4.15 the region's economy was set to earn $57 million less for the 2015/16 season. The forecast dropped again on Tuesday to $3.90 per kg, meaning the region was set to lose another $32 million.

In 2013/14 milk production in the Bay contributed $1.067 billion to the economy but in 2014/15 it had fallen to $599 million.

Federated Farmers Rotorua/Taupo provincial president Alan Wills said the full effects had not yet impacted farmers, but the outlook was not looking good, especially for younger dairy farmers who had invested a lot in their businesses.

"Farmers are going to have to take $100,000 per 100,000kg of costs out of their budgets. That's how serious it is.

"The general feeling of concern is particularly for the younger generation of farmers."

Mr Wills said another issue was market signals given by Fonterra and the Government had been slow to come out.

"And since January they've taken another 15 per cent out of what was already a poor payout.

"I hope it's not too long before it gets better. The winter is going to be particularly lean, as there won't be a lot of payments coming through in the winter months and this is when farmers are really going to be struggling."

Rotorua Chamber of Commerce chief executive Darrin Walsh said the downturn would be felt throughout the region.

"It's not rocket science. When the dairy industry is doing well they spend well. When the dairy industry is not going well, they don't spend and others find it hard. Retail spend drops, the car salesmen miss out.

"Dairy and forestry right now are not going gangbusters. But, we do have tourism. The impact on our economy is softened by the fact we have this inflow of money," Mr Walsh said.

Federated Farmers Rotorua/Taupo sharemilker section chairman, John Butterworth of Mamaku, said it was a difficult and challenging time for everyone.

"The immediate future is quite concerning, but it is a strong sector and in the long term it will bounce back.

"It's cyclic, but right now that doesn't make it easy. We all thought it may have picked up again before now.

"I've been able to increase my stock sales and take advantage of the higher beef prices but the people we are worried about are the ones who started up in the past two years."

Mr Butterworth said having a positive mindset was the key.

"It's a demanding job, but we have to stay positive knowing things will turn around in the future."

Rotorua/Taupo Federated Farmers committee member Neil Heather said another issue for farmers in the Lake Rotorua catchment were tough new rules around lake water quality.

"That's also adding to the stress," he said. "There's little sympathy out there on social media for farmers from many people. Dairy farmers got blasted when there was a high payout and now it's just the same.

"Our industry has propped up this country's economy for years and they work bloody hard. Even as a drystock farmer I find it offensive. Back off and give the guys a break, they have enough to deal with without townies giving them a serve," Mr Heather said.

Federated Farmers Bay of Plenty dairy chairman Steve Bailey believed some farmers would not make it through and "it all depends on their debt loading", but most would ride out the storm.

He had revised his budget by tens of thousands to fit Fonterra's forecast: "We were already in the red so we will just have to go back to the bank and borrow more."

The latest Reserve Bank statistics valued dairy farm debt at $37.9 billion, compared with $30 billion five years ago. A recent Federated Farmers poll showed 11.1 per cent of dairy farmers were under scrutiny by their banks.