Divided opinions on lower payout

19:04, Feb 11 2014

Banks are forecasting a lower milk price payout for next season, but experts are divided on how this will impact on farmers and the economy.

Bank economists expect a drop in the milk price payout for the 2014-15 season of between $7 or less a kilogram of milksolids (kgMS) and $7.10 a kgMS. This is big fall from Fonterra's forecast of $8.30 a kgMS for the current season.

Westpac senior economist Anne Boniface said prices would weaken when northern hemisphere production peaked later this year.

Federated Farmers' dairy chairman Willy Leferink said a drop in the payout was not something to worry about. It was still a "pretty good" price, he said. The economy would be impacted by less spending by farmers. "At the moment, we're in a luxury period." Farmers were aware and preparing for weaker dairy prices and interest rate rises, he said.

However, Waikato University agribusiness professor Jacqueline Rowarth said growing production costs and a shrinking payout meant less discretionary income on the farm, and higher debt for farmers and the economy. New Zealand had been pegged as the "rock star economy" for 2014, but having a great economy meant production costs went up.

"Everybody's expecting pay rises this year." Wage increases were the reason farmers were milking their own cows rather than paying sharemilkers.

While it was not yet known how much a softer payout and higher price of production would cost farmers, the costs "eroded" the payout.

Dairy NZ dairy production and herd size statistics from last season show that the average farmer would receive $181,000 less for the 2014-15 season, if the payout was $7 a kgMS, compared to the 2013-14 season, if it is $8.30 a kgMS. Overall, that would mean $2.2 billion less for the economy.

The Reserve Bank had highlighted the issue of high agricultural debt, she said. Farmers had spent millions of dollars on farm conversions. Fairfax NZ


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