Outlook Good for Dairying's Contribution to Economic Growth

NEW ZEALAND - The latest dairy company payout forecast bodes well for dairy farmers being able to boost the contribution they make to the prosperity of the country this season, says industry body DairyNZ.
calendar icon 2 August 2013
clock icon 3 minute read

Fonterra Co-operative Group announced today that it had lifted its Forecast Farmgate Milk Price for the 2013/14 season by 50 cents to $7.50 per kilogram of milksolids, and confirmed a further increase to the Advance Rate schedule, to $5.50 per kilogram of milksolids for the months of September to February.

“The increase in Fonterra’s forecast payout translates into another $845 million circulating in the national economy from farmers,” says DairyNZ chief executive Tim Mackle.

He says that farmers have had a great start to the new season with good grass growth throughout the winter and mild calving weather so far. “But it’s early days, there’s a lot of the season to go yet,” he says. For the end of July, less than two percent of milk production has been collected so far.

Tim Mackle says that the latest payout forecast also puts the level of farm debt in a better perspective.

“This latest payout forecast gives farmers cashflow confidence, because it helps them manage their overdrafts and debt easier. Many will use it to pay off debt,” he says.

“The level of farm debt servicing is about twice today what it was a decade ago. But what people need to understand is that the distribution of that dairy farm debt is not uniform. About 20 percent of farms have virtually no debt. Another 20 percent carry 45 percent of the debt. So the level of payout forecast is more significant for those carrying a lot of debt obviously,” he says.

“Farm working expenses now average around $4.30 to $4.50 per kilogram of milksolids and coupled with the extra costs incurred to service the higher average debt levels, many farmers need good milk prices to build resilience and strength into their businesses,” he says.

“Essentially growth in farm operating expenses and debt servicing has roughly matched growth in income despite improved milk prices. The high Advance Rate also helps farmers with cash early in the season when they need it most.”

Tim Mackle says growing dairying’s contribution to New Zealand’s prosperity is one of the ten key objectives in the industry’s new dairy farming strategy, Making Dairy Farming Work for Everyone, and an increasing milk price will help achieve that.

“At the same time, it is still just a forecast, it’s also very early in the season and things can turn on a dime, and quickly change. Farmers have learnt to live with that kind of volatility and while many will be smiling about the forecast, the excitement may also be a little tempered at this stage. Remember, we started off with a hiss and roar last season in terms of milk production, and ended up with the worst drought in 70 years. It highlights the need to keep planning and monitoring to make the best decisions.”


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