North to feel milk price pain

Fonterra Shareholders Council representative and Okaihau dairy farmer Terence Brocx said the impact of a lower payout would be "very severe" this winter and early spring. Photo / File

There could be $356 million less in milk money flowing through Northland's economy this year.

Fonterra yesterday announced the latest milk price forecast of $4.40 per kg of milk solid for this year - a reduction of 10 cents from its earlier forecast of $4.50 per kg.

The $4.40 payout would see about $392 million in income for dairy farmers. That is down $356 million from 2014's $8.40 payout, which generated $748 million.

A payment of $4.50 would have earned Northland farmers $401 million.

The final payout for this year will be announced in September.

The dairy giant also announced a forecast payout of $5.25 for next year which, if paid out, would bring about $467 million into the local economy.

Fonterra blamed the lower forecast to an over-supply of dairy products in world markets after farmers globally increased production in response to good prices 12-18 months ago.

Fonterra Shareholders Council representative and Okaihau dairy farmer Terence Brocx said the impact of a lower payout would be "very severe" this winter and early spring, when no milk would be produced because farmers would be drying off stock.

"Most of the farmers would have negative cash flow, so it will be a matter of cutting costs right to the bone." Mr Brocx said farmers needed a minimum payout of $6.50 to survive.

Mata dairy farmer Bruce Paton said he was disappointed with the latest forecast price but not surprised, given the way the international dairy market had behaved recently.

"We're at the bottom of the cycle but the prices will bounce back again. The key for dairy farmers is to keep their costs down right across the board and that way we'll be in a stronger position when the prices come back up again," he said.

Mr Paton said supporting businesses in Northland, such as those that supplied farming equipment like machinery and fences as well as fertiliser, would suffer until milk prices went up again.

He said some dairy farmers had already cancelled herd testing done by the Livestock Improvement Corporation in a bid to reduce costs.

Two weeks ago, Dairy New Zealand estimated Northland dairy farmers would lose $347 million from a forecast price of $4.50 for this year.

That loss will now be more with the latest forecast of $4.40, the lowest in eight years.

New Zealand Chambers of Commerce Northland chief executive Tony Collins said the deferment of maintenance work by farmers would have a trickle-down effect on businesses throughout the region.

He said it was time Northland started research and development on primary products such as beekeeping that were not as susceptible to world price movements as dairy.