The Nelson Tasman region will take a whopping $65 million hit from Fonterra’s latest slashed forecast milk payout price.
Last season the region’s milk income was $176m, now it is set to plummet by a third to $111m.
Federated Farmers Nelson dairy chairman Martin O’Connor said both farmers and businesses would feel the impact.
Fonterra, which is paying farmers $8.40 per kg milksolids for last season, has now revised the forecast for this season it made in August from $6 to $5.30, with no promises the price slide will halt there.
The Nelson Tasman region has 153 dairy herds which are estimated to produce 21 million kg ms.
O’Connor said the price drop would be bad for most businesses dealing with dairy farmers.
«The cheque book will be shut.
«Apart from necessities, there will be very little optional spending.»
Farms which did not have debt would survive but for many it would be a case of breaking even, and some farms would make a loss, he said.
Nationally, it was predicted 25 per cent might not make a profit, he said.
«There’s a possibility it [the payout] could go down; that’s not very pleasant either.»
Because payouts from last season were still being made, the impact from the next lower payout would hit next year.
«The big issue is going to arrive next winter and spring, when it will be really tough times.
«People have to be planning ahead for that and have their budget worked out based on things might not come right and we have to prepare for the worst.»
The region’s dairy farmers will hear from Fonterra directors in Takaka on Monday and in Havelock on Tuesday.
They would want to know that the company was doing everything it could to minimise costs and maximise payments back to farmers, said O’Connor.
«I think it is. What’s happening overseas is the reality, not what’s happening here,» he said.
Russia shutting out the EU and China reducing buying had an impact, he said.
«Farmers in this country sell to the world; what happens in the world market affects us.»
That meant «quite a lot» of belt tightening, he said.
In the supermarket, a standard 2-litre milk costs $4.35, and Fonterra says consumers should not expect to see much of a retail price drop.
Its chief financial officer, Lukas Paravicini, said the price increases of last season had not been passed on to consumers, squeezing the co-op’s margins and contributing to a 76 per cent drop in net profit.
Source: Stuff