Canterbury towns like Darfield and Waimate say they are already feeling the pinch and business leaders are warning Christchurch and the entire South Island should brace for the «massive» downstream effects from low dairy payouts this season.
The formerly thriving dairy industry has fuelled the buoyant South Island economy in recent years but farmers are heading into their second tough year in a row with Fonterra’s forecast payout falling to $3.90/kg milksolids. In 2013-14 the payout was $8.30/kgMS.
That season, South Island dairy farmers were earning about $6 billion. The drop has forced farmers to cut costs to the bone with predictable effects on the dairy servicing sector and the wider South Island economy. About 15,000 to 20,000 workers are employed on farms and dairy processing and wholesaling in the South Island.
Federated Farmers estimates about 50 cents in every dollar earned by dairy farmers ends up in the general economy.
Peter Townsend, chief executive of the Canterbury Employers Chamber of Commerce, said the Christchurch economy was heavily dependent on what happened in the wider province.
«There doesn’t appear to be any sign of the prices coming up again any time soon.»
A snapshot of the latest MYOB Business Monitor shows 21 per cent of the more than 1000 small businesses surveyed said their business revenues were affected by lower dairy prices.
According to the survey, the hardest-hit city was Christchurch, where a quarter of businesses reported a negative impact from dairy prices and 26 per cent said consumer confidence was down as a result.
«The flow on effect for general expenditure into places like Christchurch is absolutely massive for everything that anyone spends their money on.»
Farmers had been cutting back for several years and the dairy servicing sector felt the pain first. Ford said it was impossible to put a figure on the reduction in spending.
Farmers had put all development on hold although conversion work (sheep to dairy) was still being completed. Many plans for new conversions had been shelved.
The South Island has 36 per cent of the national dairy herd and produces about 40 per cent of New Zealand’s milk. It has much bigger farms and herd sizes than the North Island and hence carries more of the debt.
The Reserve Bank estimated dairy farmers owe banks about $37.9b and that half of that debt is held by only 10 per cent of the farmers. It believed about 80 per cent of farmers will have a negative cash flow in the 2015-16 season as farms need a payout of about $5/kgMS to break even.
Waimate mayor Craig Rowley said the downturn was having a «massive onflow» on his town which has two dairy factories and is surrounded by some of the biggest dairy farms in New Zealand.
Everybody was feeling the lower returns, he said.
«The town is quieter, there aren’t as many people shopping.»
He wasn’t aware of any farm workers being laid off or dairy processing jobs going but everybody was «rationalising».
He expected share milkers, who own the herds but not the farm, would be feeling the pinch the worst.
«There will be no winners. It’s a struggle for everybody.»
Ashburton farmer Willy Leferink, who owns dairy farms and businesses servicing the dairy industry, said farmers had taken a magnifying glass to their expenditure and all non-essential spending was «pretty much gone».
Farmers who supplied grain or provided winter grazing for dairy herds would be hurt and the downturn was starting to hit the towns.
Spending on complex irrigation issues involving lawyers and accountants would be shelved for the time being, Leferink said.
«We all have to get through this together and we shouldn’t make the mistake of the [1980s] again when we lost a generation of skilled farm workers.»
DAIRY FACTS:
– 96 per cent of dairy production is exported. NZ has about 36 per cent of the world market but produces only 3 per cent of the milk.
– On-farm, a worker is required for about every 200 cows.
– The South Island has about 1.9 million cows. On average, farmers spend about $1800 per cow each season.
– 18 per cent of NZ’s dairy cows are in Canterbury.
– Ashburton farmers use almost as much electricity as Tiwai Point aluminium smelter.
– South Island cows are on average more productive than North Island cows.
Source: Stuff
