$180m hit on Waikato farmers?

Waikato dairy farmers' incomes could drop by $180 million as a result of the United States' decision to reintroduce export subsidies on dairy products.

And Prime Minister John Key today added his voice to condemnation over the unexpected move.

"It's a very disappointing move and it's unhelpful because frankly it runs the risk now that it sets off even further subsidies from Europe," he said.

It is bad news for New Zealand's dairy farmers already facing rising costs and a falling payout compared with previous years. John Bluett, national vice-chairman of Federated Farmers dairy section, expected Fonterra to take a more conservative approach to working out the milk payout for the 2009/10 season in the wake of the subsidy decision by President Obama's administration. "The conservative payout was sitting at about $5 for the next year; if world prices drop 5-10 per cent we are probably looking at a 30 cent drop in payout," Mr Bluett said.

Fonterra is due to announce its 2009/10 payout forecast on Friday. The Waikato's 6000 dairy farmers average about 100,000 kilograms of milk solids each per season, meaning their potential losses could hit $180 million.

Mr Bluett said the expected loss of income would not only impact the Waikato's dairy industry but would impact on the wider Waikato economy.

Farmers are now waiting on the European Union's response to the US decision. Waikato Federated Farmers president Stew Wadey expected Fonterra's board to revise the milk payout, but said there would be major cause for concern if the European Union also decided to take a more bullish approach to subsidies.

"My personal opinion is this intervention of US dairy farmers will affect world commodity prices which will ultimately affect the farmgate return for Waikato dairy farmers." He said the reintroduction of export subsidies would not only impact on the country's "milk jug" the Waikato but the whole country. "It's a serious concern. The US is going to subsidise 92,000 tonnes of export product. In perspective, New Zealand only produces 105,000 tonnes, so it's the equivalent of almost subsidising all New Zealand's production."

Fonterra managing director of global trade Kelvin Wickham said it would make it harder for New Zealand farmers to compete internationally and sent a negative message to the market and global community. "Farmers all around the world are hurting with returns at current levels. But it's vital we don't have subsidies and support programmes which distort the market and send the wrong price signals to farmers."

However, Morrinsville dairy farmer Lloyd Downing said that while it was bad news, New Zealand farmers would survive. "We will have to hang on and ride the storm, and you can guarantee when we come out the other side we will be a lot better at farming and still competitive on the world market."