Regional New Zealand is facing significant economic losses as Fonterra and Synlait forecast lower milk prices for the upcoming year. The dairy industry plays a pivotal role in the region’s economy, and the estimated loss, taking into account wider spending, is projected to be $5 billion. This decline in dairy prices adds to the already struggling beef and lamb exports on the global market.
On August 4, Fonterra revised its predicted farm milk gate price to a range of $6.25 to $7.75 per kilogram of milk solids, with a midpoint of $7. Synlait also followed suit, citing a surplus of fresh milk in the Chinese market, reduced demand, and price drops. Farmers, especially those in the Horowhenua near Levin area, are particularly affected, with many projected to operate below the break-even point in the coming year. This will result in a big hole in cash flow, leading farmers to cut down on emergency and essential spending.
Despite the challenges posed by government regulations, high inflation, and high costs, farmers are thankful for the early news of the lowered payout. This enables them to adjust their expenses accordingly and avoid investing in unnecessary upgrades and discretionary spending. However, farmer confidence has hit historic lows, with a survey revealing a steep decline in confidence due to falling dairy and meat prices, high interest rates, inflation, and regulatory changes.
In Southland, the largest contributor to the region’s economy, the anticipated loss from the lower dairy payout is estimated to be $365 million over the next year. The wider Canterbury area is expected to face a $1 billion loss, but the region’s solid diversified economy provides some resilience. The Taranaki region, already dealing with the ban on oil and gas, will likely experience a $1.2 billion hole in its economy due to the drop in milk prices.
