New Zealand dairy farmers will face significant challenges in the coming 12 to 18 months but the medium to longer-term outlook for the sector remains sound, rural lending specialist Rabobank said.
Rabobank New Zealand chief executive Ben Russell said while the challenges New Zealand dairy farmers would have to deal with in the immediate term were "acute", the bank expects a price recovery to commence during the 2015-16 season.
He said Wednesday's announcement by Fonterra that it would cut its farmgate milk price forecast to $4.70 a kg from $5.30 a kg reflected the "unfortunate reality" of subdued demand and over-supply of milk in global markets.
"It also demonstrates the inherently volatile nature of global agricultural commodity markets and the sharp swings in income that farmers face on an annual basis," he said.
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• Fonterra to cut costs as forecast falls
• Fonterra slashes milk payout - down 60c to $4.70