New Zealand's largest dairy co-op, Fonterra, has slashed its forecast payout to dairy farmers by 48¢ per kilogram of milk solids. The price has dropped from the November forecast of $11.90/cwt to about $10.10, effectively dropping the average farmers' income by some $50,000. It is the third time the co-op has dropped its price since the opening forecast for the season of $13.90. The reduction takes $800 million out of new Zealand's economy and the flow on effect to the rest of the country will be large.
Fonterra has also announced it will be deferring $13,000 of the payout from its usual April payment to farmers, to October to give the co-op access to more cash.
New Zealand's second largest daiy co-op, Westland Milk Products, has already slashed its forecast milk payout from $13.25 at the start of the season to $8 to $9/cwt.
Farmers say the rapid decline from last season's record payout is making it extremely hard for dairy farmers to budget. Some have pulled out of corn silage contracts, preferring to lose deposits than pay for the crop. Contractors have been left with hundreds of hectares of crop with no buyers. The crop was planted when fertilizer and fuel prices were high compounding the silage contractors' problems.
Keeping it in perspective, however, is that the projected payouts are still the third highest in the past decade, but farmers have been gearing up farms to be higher input operations. Last season's payout of $15.65 was a record.
Fonterra says the drop's due to softening commodity prices overseas and the ongoing melamine saga with Sanlu in China.
China saga. The Sanlu milk scandal continues to dog Fonterra with three of Sanlu's top executives being give life prison terms or the death penalty. Fonterra is denying allegations the co-op approved a level of melamine in baby milk formula in China. Sanlu's chairwoman claims a Fonterra appointed director gave her a document showing levels of melamine permitted by the European Union. Fonterra says she was given a document but emphasized melamine was not to be used in the formula. Chief Executive Andrew Ferrier says no level of the chemical is acceptable in food products.
European subsidies. New Zealand's Trade Minister Tim Groser says the European Union's decision to re-introduce dairy export subsidies risks repeating the failed trade protectionist policies of the 1930's. It also makes a mockery of the G20 declaration of November 15, which highlighted the critical importance of rejecting protectionism in times of financial uncertainties. Groser says bringing in export subsidies is extremely irresponsible.
Farm sales. The number of dairy farms selling in the Waikato continues to fall. Latest Real Estate Institute figures show the number of farm sales for the three months to December 2008 fell by 55% to 45 compared with the same period in 2007. This reflects the declining confidence in the dairy sector.