Low payout to hit Rotorua

Fonterra has cut its dairy payout forecast. Photo / File

Dairy farmers tighten belts as returns drop.

Rotorua is set to feel the economic impact of farmers tightening their belts and reducing spending after the drop in milk price.

Farmers are preparing for tough times as they deal with news this week that Fonterra was cutting its farm-gate milk price forecast for the 2014-15 season to $4.70/kg - down from last year's $8.40/kg.

With the cost to produce each kilogram of milk solids sitting at about the $4 mark, it means there won't be much money in the farmers' pockets.

Federated Farmers Rotorua Taupo president Alan Wills said dairy farmers contributed significantly to the GDP of the Rotorua district, and the impact would be felt across the community as farmers cut unnecessary spending. "We are a significant part of the Rotorua GDP. Everyone will feel it."

He said farmers would not be surprised at the news.

"There will be some hard times for farmers, especially the ones that haven't seen this coming ... it's not going to be a pretty time."

Mr Wills said it would be a matter of reviewing budgets and working with bank managers to ride out the tough times.

He said those who were new to the industry and hadn't had the benefit of last season's big payout were likely to be among the hardest hit.

He said long-term farming was still a good viable business and many farmers were used to ups and downs.

"The industry is now at a point where we've got used to living with the volatility."

Perrin Ag consultant Byron Bird said he did not think the announcement would have come as a surprise to farmers, but it was still likely to hurt them.

"It's 40 per cent lower than this time last year. There will be a lot hurting."

Rotorua had a huge dairy community and with farmers generating less money there would be less flowing through the community, Mr Bird said.

Rotorua Chamber of Commerce chief executive Darrin Walsh said any downturn in dairy had an impact on Rotorua, but he was hopeful that there was enough happening in the rest of the economy to sustain the downturn.

"It won't just impact on the farmers. If they're earning less, then it means they're spending less. The economy in Rotorua is just starting to pick up but any little blips like this that take people out of the spending cycle do have an effect. Hopefully, it is just a blip."