By PHILIPPA STEVENSON agricultural editor
The economy is set to receive a billion-dollar boost from the pockets of dairy farmers with the announcement yesterday of a boom payout.
Dairy farmers will receive an average $70,000 increase in their incomes after a season of strong world prices and the low exchange rate.
National Bank chief economist Brendan O'Donovan said the payment would add momentum to the strong export-led performance of the economy this year.
"We've already seen the benefits - it's backing up two pretty good seasons," he said. "We're getting a massive cash injection from the seasonal nature of the exports."
The extra billion dollars represented about 1 per cent of gross national product and would boost the whole economy, he said.
The size of the Dairy Board payout came on a day farmers were celebrating mid-summer rain.
As the welcome rain pelted on to parched pastures the Dairy Board estimated that it would pay the country's 14,500 dairy farmers $4.50 for every one of the nearly billion kilograms of milksolids they produced.
Yesterday, two Waikato farmers who stand to gain more than most, because they supply the country's top-paying dairy cooperative, Tatua, were hard pushed to decide which pleased them more - the rain or the payout.
Terry Semmens said that after two years of drought on his Morrinsville farm the rain was a relief.
As for the payout, "it would be quite nice if it was sustainable [over several years]."
Fellow Tatua supplier Dave Fish said the rain was "free money from the sky."
But he greeted the news of a board payout around 25 per cent higher than last year with, "That's huge." Quickly calculating that increases in costs for diesel, seed and fertiliser would still leave him with more money in the bank, he said: "It's certainly a good year."
Dairy Board chairman John Roadley said the board expected to pay $4.2 billion, compared with $3.1 billion in 1999/2000.
"These figures strongly underscore the dairy industry's position as the powerhouse of the economy."
The forecast, a significant rise on an earlier estimate of between $4.10 and $4.25, is due to strong international dairy prices and the low Kiwi dollar.
Mr Roadley said world prices continued to be underpinned by a relative shortage of milk in the European Union and by improving economic conditions in Asia, Latin America and Russia.
The Dairy Board's two business units, New Zealand Milk and NZMP, had performed strongly in the first half of the dairy year, he said.
In the six months to December, New Zealand Milk's revenue was up 13 per cent to $1.667 billion and NZMP's revenue was $2.75 billion, up 15 per cent on the same period the previous year.
But Federated Farmers dairy leader Charlie Pedersen said some farmers thought the payout could be higher.
They were worried the board would hold on to some of its earnings to pay for a "shopping list" of overseas company acquisitions.
Mr Roadley said retention of earnings would not be considered until the end of the season.
Agriculture Minister Jim Sutton said the payout estimate was excellent news.
It demonstrated the benefits of more exporter-friendly exchange rates, a good season and the progress made in trade liberalisation in providing some constraints on the level of export subsidies used by industrialised countries.
Country set to bask in dairy cash windfall
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