Low dairy payout drains $7.5b from NZ economy
Dairying's multi-billion dollar value to the national economy has almost halved since Fonterra's payout fell from its peak in 2013-14.
Milk was only worth $8 billion to the national economy for 2015-16, down $7.5b since the payout peaked at $8.40 a kilogram of milk solids in 2013-14 according to new figures from DairyNZ.
The value of milk production for the Waikato economy, home to 34 per cent of the country's dairy herds, suffered a similar loss.
Waikato was drained by a $2 billion drop in milk value, falling from $4.2 billion to $2.2 billion for 2014-15.
The figures, released after DairyNZ's annual meeting in Ashburton, showed a 2.8 per cent decline in milk production for Waikato, totalling 503.3 million kilograms in 2015/16. Despite the fall Waikato still produced 27 per cent of the nation's milk volumes.
The industry body described the 2015/16 dairy season as the most challenging year yet for dairy farmers.
Last season's $3.90/kg milk price was the lowest in more than a decade and was felt hard by farmers who last season were, on average, operating at a break-even cost of $5.25/kg.
Compounding last season's challenges was the low milk price in 2014/15, although that season had been somewhat buffered by the $8.40/kg milk solids price of 2013/14.
In 2015/16, many farmers increased their debt to cover costs with no significant retrospective payments from the previous season.
Most of the income from milk was spent on farm working expenses and Waikato farmers reduced their expenditure by $200/cow to $1300/cow in 2015/16.
Waikato herd numbers also declined by 65 to 3955, a faster rate of decline than in the previous seven or eight years.
Owner-operator herds, including herds with contract milkers, increased by 20 to 2628 herds, while 50:50 sharemilkers were back 23 herds to 863 herds and variable order sharemilkers declined by 74 herds to 452 herds.
The number of Waikato cows milked declined by 14,905 cows, totalling just under 1.4 million, reflecting the high number of replacement stock from the previous seasons.
Waikato Federated Farmers president Chris Lewis said the figures showed how difficult the past two seasons had been for dairy farmers.
"It shows the decline that farming families have had to struggle with and at the moment while there is a bit of optimism out there, we have not seen the concrete signs of a proper revival yet."
Waikato dairy farming was not expanding and farmers had reduced their stocking rate because of the low payout and to improve their environmental footprint.
"Mum and dad farmers are tightening up and looking at their environmental footprint and seeing how they can do better things. They are trying to find the balance between economic, environmental and lifestyle on their farm."
After continued growth when the milk price was high, farmers were now trying to find their best farming system, he said.
The reduced per cow expenditure added up to $80,000 across a 400-cow herd and was partly due to falls in other commodity prices such as fertiliser.
Despite an obvious shortfall in farm income, last season farmers made positive steps in reducing their costs of production, DairyNZ chairman Michael Spaans said.
"Our data shows farmers have become more efficient and fine-tuned their farm management – so much so, that in August we revised the average farm's break-even cost down to $5.05/kg milksolids for 2016/17.
"This is a rare positive from a period of low milk prices and something farmers should be immensely proud of. Farmers' abilities to sharpen the pencil and remain focused is key to maintaining our industry's international competitiveness."