This weeks cut in Fonterra’s milk price payout was to be expected, but it is further bad news, especially for new entrants into the dairy industry, according to Kiwi farmers union Federated Farmers.
Its Dairy Chairperson Andrew Hoggard said that Fonterra payout will put what he calls ‘real pressure’ on dairy farmers with a large debt load.
“Sharemilkers who bought into the industry on a budget structure round $6 will find it really hard, because they aren’t getting any returns from last year either.”
“Adjusting to payout fluctuations is built into the way primary industries work these days. Gone are the days when a producer board or government tried to guess the market and smooth it out for farmers to budget. It’s now for farmers to take their own long term view.”
“That includes good communication with bankers, accountants, family and staff, all of these people have a stake in helping to get through this low payout period.”
Mr Hoggard attributes the low Fonterra payout to a number of factors.
“The industry has taken a multiple whammy this year. Not the least of this is an overstocked Chinese inventory. Some of the Chinese wholesalers bought up large, and helped push the payout last season beyond eight dollars. My guess is those wholesalers will be having difficult conversations with their bankers at the moment,” Hoggard said.
“The Ukraine conflict this year, and its wider trade restrictions and disruption, have done no favours for dairy producers either, whatever their country is.”
Mr Hoggard said his view of the long term world dairy prospects is still optimistic, though price increases are unlikely to be sudden.
“The fundamental is that milk is a nutrient dense food.”
“Short of a global meltdown we know the number of middle class consumers of the Asia Pacific region who will seek out dairy products will increase by at least five times in the next decade.”
“Historically, middle classes eat much more dairy product. That’s mostly why the average European consumes more than 150 kilos of milk a year and the average person in most of east and south Asia less than 30 kilos.”