Extra $1 to farmers means $1bn to economy

Milk production could continue to grow by 1 to 3 per cent a year. Photo / Mark Mitchel

More than $1 billion is pumped into the economy every time Fonterra boosts its payout to farmers by $1, says a report which confirms the dairy industry's importance to New Zealand's finances.

The New Zealand Institute of Economic Research report commissioned by farmerco-operative Fonterra and Dairy NZ said the national benefit from an increase of $1 a kg in the Fonterra payout was worth $1.2 billion in extra spending throughout the economy - equivalent to more than $270 per person.

"There is no doubt that dairy has helped us out of the recession and the benefits extend well beyond the farm gate," Fonterra chief executive Andrew Ferrier said.

"Export growth from the dairy sector has helped narrow the current account deficit and that helps everyone through lower interest rates on mortgages and other borrowings."

The report said exports for 2009 were $10.4 billion, which accounted for about 26 per cent of total goods exports.

"Most people understood dairy was a key export industry," Ferrier said.

"Now they can understand what it means for them as the report accurately quantifies, for the first time, the tangible benefits to both rural and urban communities."

Milk production could continue to grow by 1 to 3 per cent a year, he said.

"We forecast slow, steady growth on average and into a global market which is actually growing much faster than New Zealand alone can supply so it does mean a very attractive future for dairying out of New Zealand in the global marketplace."

The report showed a huge spill-over from farmers' spending money into their communities and to New Zealand as a whole from having a better balance of payments, he said.

Of the total export value, $7.5 billion was spent on raw milk purchases from farmers, of which $3.6 billion was spent on domestically produced inputs including fertiliser, feed and agricultural and financial services.

Fonterra's forecast for the 2010/11 season is $7-$7.10 a kg of milksolids before retentions and a $7.10 payout based on stable production levels could be worth about $9.1 billion.

NZIER deputy chief executive John Ballingall said modelling showed the sector had delivered significant and ongoing benefits.

"Its influence extends well beyond its direct impacts in dairying areas, with the sector closely intertwined with the rest of the economy," Ballingall said.

"That includes the jobs it delivers, the income that these workers earn, its links to supply firms, the effects of rural economic growth on urban centres and the tax revenue it provides to fund public services."

The dairy sector accounted for 2.8 per cent of gross domestic product, equivalent to $5 billion, and employed 35,000 people (excluding self-employed), the report said.

Dairy NZ chief executive Tim Mackle said urban centres got a healthy share of indirect employment.

"We've got a good track record of supporting regional growth, which this report shows, and we want to continue this trend."