Dairy fall may cost Bay $390m

Bay of Plenty Federated Farmers dairy chair Steve Bailey says farmers will be reducing expenditure following Fonterra's lower dairy forecast. Photo / Andrew Warner

Continual falls in Fonterra's dairy payout forecasts could wipe $390 million from the Bay economy and business leaders say the impact will be felt across most sectors.

This week Fonterra's forecasted dairy payout dropped from $6 kgMS to $5.30 which, according to Dairy NZ, represents a $390 million dollar drop in revenue for the region when compared with the record 2013/14 payout of $8.40.

Economist Angie Fisher estimates the $3.10 drop forecasted would cost the country about $5.6 billion.

Fonterra chairman John Wilson said the lower forecast Farmgate Milk Price reflected continuing volatility, with the Global Dairy Trade price index declining 6 per cent in the past two trading events.

Tauranga Chamber of Commerce chief executive Dave Burnett said the impact would have a ripple effect as "farmers tightened their belts and closed their wallets".

"You will see it in the region as well as the city from agriculture services right through to retail."

Bradstreet Contractors owner Peter Bradstreet lost $450,000 during the drought last year and was preparing himself for a similar hit.

"I am just hanging in there. We are still being optimistic at this stage but we have maize in now that doesn't come off until March or April and some are already wondering how they will pay for it."

Federated Farmers Bay of Plenty provincial president Rick Powdrell said it did not take a "a rocket scientist" to figure out that the reduced forecast meant millions of dollars less would be spent in the community.

Business commentator Rod Oram said heavily indebted farmers might not be able to pay their interest and meet cash costs.

"Some farmers will be on break-even point."

Federated Farmers Bay of Plenty dairy chair Steve Bailey said he was doing his budget and had phoned contractors to advise them they would only be doing work that was needed.

Mr Bailey said he knew of farmers who would be in a position where production costs exceeded income.

Western Bay of Plenty District Mayor Ross Paterson said other industries including forestry, kiwifruit, and sheep and cattle farmers were in a strong position.

"I do not think there will be a big downturn, as our reliance on dairy farms is not as severe as other regions."

Te Puke dairy farmer John Scrimgeour said if the payout held, most farmers would be able to cope.

Rabobank northern North Island regional manager Bruce Weir said the squeeze was likely to be felt next year and flow on to affect agricultural providers and services.

Farmers had been deferring principal payments and capital expenditure and just doing the bare minimum to ensure stock was well feed and production was in the vat, he said.

"It's just a cycle farmers are used to and they are very resilient. We are picking dairy prices to improve next year and it's just a matter of those that may be cash-flow negative to seek assistance to pull them through."

Dairy NZ research and development general manager David McCall said most farmers would cope with lower prices, provided there was not another drought.

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