Economic view: A quarter of Kiwi dairy farmers could go under
Published 20/04/2016 | 02:30
It is not surprising in a country where dairy products account for around a quarter of export earnings, the sector is rarely out of the news.
Recently this coverage has been dominated by the fall in the predicted payout from Fonterra to just NZ$3.90 (€2.40) per kilo of milk solids (excluding dividend) - which can be compared with a high of NZ$8.40 (€5.15) two years ago and an often cited average cost of production of around NZ$5.20 (€3.20).
As Irish producers are all too aware, the period of low prices has been more persistent and prolonged than envisaged by almost all industry observers.
Within New Zealand, the low milk price has placed considerable pressure on the sector. However it is dairy farmers, as usual, at the sharp end of this and some estimates suggest up to 25pc of producers could go under if the low prices persist.
It is fair to say that the response of the government has been to generally try and play down the seriousness of the problem. It argues the industry is 'resilient' and that it is more like 5pc to 10pc of farms that are at risk of failure.
Of course, without a complete ideological change, they are limited in the actions that they can take. Unlike in Europe they do not have support payments which can either be increased or brought forward nor mechanisms to buy up excess supply.
There have been muted calls for some form of support scheme to help farms temporarily through this, but they are few and far between.
Earlier in the season Fonterra implemented an interest free loan scheme for producers and recently stated it will pay out the dividend to producers early to help them through winter.