Rural towns and businesses may have a tough year ahead as farmers trim unnecessary spending.
Fonterra yesterday cut its payout forecast to farmers to $5.10 per kg for the 2008-2009 year - 90 cents less than its previous forecast of $6 per kg of milksolids. The reduction slashesaverage farm incomes by more than $100,000.
Farmers and farm suppliers say the reduced payout will be enough to cover the basic costs of running a farm.
But rural communities are worried spending from what was a buoyant dairy sector may be about to dry up.
A fall to $5.10 from last year's record available payout of $7.90 per kg could mean about $3.3 billion less in the economy this season.
Federated Farmers economics spokesman Philip York said a payout of $5.10 was still high by historic standards - high enough for basic farming to carry on as normal.
However, he said extra spending - such as a new roof or a family holiday - would be put off for another season.
"There's a lot of things they [farmers] would've liked to have done - expansion or catching up on things, or spending some money on the house," he said. "Those are the things that may have to go by the board."
Matamata-Piako Mayor Hugh Vercoe said electricians, painters and builders in rural towns would suffer if farmers received a pay cut. "We've got a very large concentration of dairy farms in our area and a lot of our businesses do serve those dairy farms," he said.
"The prediction is that work that has previously gone on on those farms, the capital work, will stop ... that will have flow-on effects for all of the business in the town."
Ted Murphy, of Waikato Tractors, said farm equipment-sellers would also feel the effects. "If their [farmers'] overheads were the same as five or eight years ago it wouldn't matter so much, but check out the price of fertiliser," he said. "I knew it [the lower payout] was going to happen ... but it will certainly slow our sales down."
CUTBACKS * Forecast payout down 90c to $5.10 per kg.
* $3.3 billion less in the economy this season.
