$58,500 loss for average dairy farm

Dairy farmers have rallied against the sudden reversal in their fortunes, planning heavy cuts in on-farm expenditure and a return to traditional pasture-based farming. Photo / Sarah Ivey

The average dairy farm finished the 2008-09 year with a cash loss of $58,500 as a steep slide in payout, adverse weather and a gloomy payout forecast for the new season combined to make a "forgettable year" for New Zealand dairying, the Ministry of Agriculture says.

But MAF's latest monitoring survey shows dairy farmers, while "subdued and deeply concerned" about the short-term outlook, have rallied against the sudden reversal in their fortunes, planning heavy cuts in on-farm expenditure and a return to traditional pasture-based farming.

MAF's survey of 200, mainly owner-operated, dairy farms found that despite going into the 2009 winter with less than desirable grass cover and cow condition, farmers were budgeting for a 3 per cent increase in milk production this new season.

But the average farm, according to MAF's modelling, will still make a cash loss of $15,500 this season, suggesting further economic reverberations across towns and cities.

Most New Zealand dairy farmers supply co-operative giant Fonterra, responsible for 27 per cent of all export returns. They have gone from boom to bust in less than two seasons.

In the 2007-08 dairy season, Fonterra's available payout to its suppliers was $7.90 per kg of milksolids. Fonterra started the just completed 2008-09 season offering $7, but as international commodity prices plunged more than 50 per cent in the economic downturn and the kiwi dollar held up against global dairying's currency the US dollar, its forecast slid to $5.20.

Then, in May, as they faced the consequences of spending to suit a reduced payout and suddenly shrunken bank credit lines, farmers got more bad news. Fonterra announced a $4.55 payout forecast for the 2009-10 season - a potential cut of around $900 million and a $3.5 billion drop on the record 2007-08 payout year.

But MAF director of sector performance policy Iain Cossar said despite the subdued mood, farmers were upbeat about the future.

"They are still very positive as are we positive about the medium to long-term picture for dairy. Our focus at the moment is on the short-term, getting [farm] input costs back under control with the lower payout.

"But I think things will start looking more positive around 2010. I think the current payout [$4.55] is just below the long-term average - 2010 will probably be around the long-term average payout and hopefully beyond that it will grow steadily as consumer confidence in international markets picks up and demand increases with increasing population growth."

MAF's survey found that despite a 9.8 per cent increase in milk production in 2008-09 (most of it post-drought recovery) net cash income dropped 27 per cent to $750,000 against the previous season, mostly the result of the payout fall. If not for off-farm income, new borrowing and introduced funds, the cash loss for the average dairy farm would have been $130,600, said MAF.

Farm working expenses rose again in 2008-09 to an average of $3.86 per kg, driven by increased feed and fertiliser expenses. According to MAF's modelling, the average dairy farm's projected loss of $15,500 this season will grow to almost $40,000 in the absence of off-farm income, new borrowing and introduced funds.

Farmers expected to cut their working expenses by 11 per cent to $3.34 per kg. MAF said major spending decreases were planned for feed, fertiliser, repairs and maintenance.