Fonterra payout cuts to affect farmers and economy
Tue, 22 May 2012 6:18p.m.
By Tony Field
The engine room of New Zealand is running out of steam, with Fonterra cutting its forecast payout to farmers.
Farmers can expect 30c less per kilogram of milk solids this season, thanks to weakening global commodity prices.
But there is more bad news in store next year, as other countries ramp up their own milk production.
A total of $500 million has just vanished from the economy and for farmers like James Houghton it means even less money to pay the bills.
“It just comes straight off the bottom line, we will be down with that 30c over $60,000 coming through the next three or four months.”
Milk powder prices are around 40 percent down on where they were a year ago, thanks mainly to falling demand overseas.
So Fonterra has cut the forecast payout this season to between $6.45 and $6.55 per kilogram of milk solids.
Federated Farmers president Bruce Wills says there are pros and cons to the cuts.
“Cheaper milk is certainly on its way, but considerably less money through the New Zealand economy.”
Next year's forecast is even worse, because other countries are increasing their own production.
A weaker dollar should be easing the pain for farmers - and other exporters, because it makes New Zealand products more competitive overseas.
But milk powder prices are falling further and faster than the New Zealand dollar.
“It’s still stuck at a reasonably high level, and that's squeezing income levels throughout the rural economy,” Mr Wills says.
A lower payout makes it even harder for farmers struggling to pay the mortgage and other costs like council rates, DairyNZ chief executive Tim Mackie says.
“Clearly costs are the important thing to look at from here on in. And probably feed related costs are the most important thing, and that's the single biggest operating cost so naturally that's where farmers should look first.”
The longer term outlook for dairy prices is still good - but farmers are firmly focused on getting through this year.
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