Low dairy payouts affect town and country

TOWNIES can be quick to dismiss falling payouts for dairy farmers as nothing more than an historic cycle.

They are quick to remind the cockies of the times of plenty when milk price payouts from the likes of Fonterra reached record levels. Think of the 2010-11 season and payouts reaching $8.25 per kilogram of milksolids.

In those halcyon days the actual cash to farmers was $7.90/kg and for the average-sized dairy farm this equated to a $790,000 income.

But all of us - townies and cockies - should take this latest slump in dairy payouts more seriously. Fonterra's 2015-16 farmgate milk price forecast is at $5.25/kg of milksolids and it has cut its forecast for the 2014-15 season (which ended last Sunday) by 10 cents to $4.40.

Yesterday came news of another fall in dairy product prices - the GlobalDairyTrade auction hitting the lowest level in nearly six years.

These numbers have dairying consultants issuing dire warnings, suggesting banks could foreclose on some farms. By one estimate, most dairy farms need a payout of $6 to service existing debt, so this latest price from Fonterra will send a shiver down dairy spines and centres like Wanganui which rely on farming economies.

Those who have invested megabucks in a dairy conversion and those dairy units reliant on intensive irrigation schemes will all be very worried.

The average herd size in New Zealand has increased by 100 cows since the early 2000s as farmers try to cash in on higher milk prices. But data shows those farm which increased their herd size did not end up any better off.

It has been this push to increase milk production rather than focus on profit and resilience that is part of the problem.

Dairying is like any other business. It succeeds through good management and good decision-making. And gambling on high payouts is not good business practice.