Collapse in dairy price worries New Zealand: Distressed farmers call for support

Law makers and distressed farmers in New Zealand called upon the government to provide emergency support as the global collapse in dairy prices is taking a toll on farm incomes. The call comes in the wake of the world's biggest dairy exporter, Fonterra, announcing deep cuts in its pay outs for member farmers for the 2015-2016 period that started in July.

Fonterra Co-operative Group Ltd. forecast a payout of NZ$3.85 (AU$3.44) per kilogram of milk solids well below the widely estimated sum of NZ$5.70 (AU$ 5.10) that farmers require to break even. Earlier in August, prices on the Fonterra-run fortnightly Global Dairy Trade auction crashed to the lowest ever in seven years. The auction prices for whole milk powder and skim milk powder fell sharply to US$1590 (AU$ 2169) and US$1419 (AU$1936) on a per tonne basis.

Fonterras’ view

Fonterra Chairman John Wilson justified the cut in payout by noting that there is no end in sight for the continued imbalance in the global dairy market between weak demand and surplus supply. "This imbalance and the challenge of lower prices continuing for longer than anticipated is a global issue, which dairy farmers around the world are increasingly grappling with," Wilson said in a statement.

According to reports, even to pay the NZ$3.85 farmgate price Fonterra still has to struggle as it requires a 15 percent improvement in the existing dairy prices. Analysts argued that on the basis of current inputs that make up the payout, the market would need to see a 15 percent increase in prices for achieving NZ$3.85 per kg of milk solids. This was stated by OM Financial's director Nigel Brunel. ANZ rural economist Con Williams also warned about "downside risk" in the latest milk price forecast and noted a substantial improvement is still required before paying at the rate of NZ$3.85.

Labour's concern

The opposition Labour Party blamed the government for the crisis and said payout cut would wipe billions of dollars from the country's rural economy. "Fonterra's forecast payout will make life tough for many farmers. It also puts pressure on the communities around them." Labour finance spokesperson Grant Robertson said in a statement. He alleged that the government is in a denial mode with claims that dairy prices would "come right" and demand from China will pick up, despite the fact that already there is a "milk powder mountain" in China.

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