A farming leader says some struggling farms “may not survive” a deep slump hitting the dairy industry and another believes it could be “the worst cycle” the sector has faced in 50 years.
Industry figures are urging farmers struggling with the emotional toll of the downturn to seek help and say its economic impact will also hit communities and the Government’s purse.
Dairy prices fell by 7.4 per cent at the Global Dairy Trade auction on Wednesday off the back of Fonterra revising its 2023/24 season forecast Farmgate Milk Price range to a midpoint of $7 per kgMS or $1 less than its earlier midpoint.
The price drop has been linked to reduced import demand for whole milk powder from China and is expected to see farmers cut their spending, with many moving to interest-only loans to help reduce costs.
Dairy farmer Margaret Wright said she was fortunate to be well established but the slump would “hurt everyone” and some farms “may not survive”, depending on how long the downturn lasted.
The Federated Farmers Bay of Plenty dairy chairwoman said she felt for farmers or share milkers in the early stage of their careers.
“The change in interest rates has been massive and really fast… debt servicing is significant and going to be tough on a dropping payout. Some costs have increased and are still high including seed, fertiliser and fuel to the order of about 15 per cent.
“Our in-shed feed has doubled in price in the last two years, it’s gone through the roof.”
Falling rural sector incomes would mean less revenue for the Government, Wright said.
“We will pay less tax because we are making a lot less money so the Government will have less to spend. Farmers pay lots of tax.”
Wright said continuous rain in the Bay of Plenty last season had taken an emotional toll and some farms were still wet and cold.
“They are just not growing so it is sort of a perfect storm brewing, which is a bit scary.”
She encouraged stressed farmers to reach out.
“Talk to the bank, talk to your peers, don’t do nothing. The worst decision you can make is not to make a decision.”
Federated Farmers Rotorua-Taupo dairy chairman Mark Seymour said in 50 years of farming, he had seen really good and really bad cycles “but I believe this is going to be the worst cycle.”
He said there was a lot of change going on with proposed emissions policies, regulations and high interest rates, which had created many unknowns.
“The mental anguish is probably starting to have quite an impact on all farmers and even older farmers get stressed. Some of them are nearing retirement and have worked for a number of years and are about to step out of their careers then all of a sudden it’s not a viable option.”
Enthusiasm and morale were low, he said.
“Farming is the backbone of New Zealand’s economy, it’s significant and there is nothing to take its place.”
Farmers would only be spending the “bare minimum”, according to Federated Farmers Bay of Plenty provisional president Brent Mountford, and the impact would flow through every community.
“They are putting away their chequebooks. There’ll be lots of deferred maintenance, reduced spending on fertiliser and they won’t spend on new vehicles, farm machinery, or motorbikes.”
Farmers he knew had gone to interest-only loans, increased overdrafts and were consolidating or taking on more debt - some up to or above their borrowing limit.
“They had hardcore overdrafts so they were struggling and that was before they talked about the payout dropping.”
Mountford said AgFirst’s calculation that the forecast milk price drop would take an estimated $5 billion out of the economy was a major blow.
Meanwhile, kiwifruit has had a “hell of a time”, sheep and beef costs were up about 17 per cent and avocados had a couple of really bad seasons, he said.
Alastair Neville was feeling “nervous” about the next 12 months. The Federated Farmers Rotorua-Taupō share farmer section chairman said the outlook was concerning for all share milkers and farm owners.
“Even established farm owners that were pretty well debt-free are having to borrow money just to get through the current season. Some share milkers have also dropped back to interest-only payments.”
He said higher interest rates and living costs, weather events and other costs rising were among the stressors.
He said he felt fortunate to have had a reasonable season and particularly felt for farmers in Hawke’s Bay whose “whole farm has changed” post-Cyclone Gabrielle.
He agreed farmer spending would stop and this would filter down to cafes and restaurants.
Most share milkers owned the cows and got 50 per cent of the milk income, he said.
Fonterra Farm Source group director Anne Douglas acknowledged the $7 forecast put a strain on farm profitability.
“The capital return is due to be paid on August 18 and we’re expecting a strong full-year dividend. Looking at our operations, we are firmly focused on bringing costs down as we look for efficiencies.”
She said more than $16 million Farm Source Rewards dollars had been earned and farmers could use these to buy a goods ranging from store farm input products to groceries.
“This period will be tough on some farmers’ well-being, and it’s important we provide the support to help and look out for one another.”
Fonterra had Pie Day Fridays at Farm Source stores, employee assistance services available for farmers and it was partners with the Rural Support Trust.
DairyNZ general manager of farm performance Sarah Speight said it forecast a national break-even average price of $7.51 per kg/MS for this season.
“The dairy sector has been here before and made it through. With the right approach, we can do it again.”
DairyNZ would be working with farmers to help them remain viable this season.
Dairy contributed up to about $50b a year in direct and flow-on income to the economy.
ANZ bank business and agri managing director Lorraine Mapu said farm costs had risen quickly, and farmers had to adjust.
As the Reserve Bank attempts to rein in inflation, interest rates had risen quickly from some of the lowest in history, and farmers were not immune to that, she said.
Many, however, had taken advantage of the low rates to pay down debt and invest in assets, which would make them resilient now.
“We would encourage farmers to complete their forecasts for the next few years ahead and get in touch with their bank with their plans sooner rather than later if support is required.”
Minister for Agriculture Damien O’Connor said he understands the pressures on-farm at present and farming is cyclical.
“After a couple of years of record prices, many will have expected prices to fall.”
He said farmers who were struggling mentally it was important “to talk to someone whether it’s someone in their family or their neighbour it helps”.
Farmers and their families could also contact their local Rural Support Trust, MPI or Farmstrong’s mental wellbeing promotion programme.
Carmen Hall is a news director for the Bay of Plenty Times and Rotorua Daily Post, covering business and general news. She has been a Voyager Media Awards winner and a journalist for 25 years.
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