Roundup: Dairy price collapse prompts dire warnings for New Zealand economy

New Zealand farmers and lawmakers Friday called on the government for emergency support as the global collapse in dairy prices began to take its toll on farm incomes.

The call followed the announcement by the world's biggest dairy exporter, Fonterra, that it is forecasting deep cuts to its cooperative member farmers over the 2015-2016 season, which began last month.

Fonterra Co-operative Group Ltd. forecast a payout of 3.85 NZ dollars (2.53 U.S. dollars) per kilogram of milk solids -- well below the widely estimated sum of 5.70 NZ dollars (3.74 U.S. dollars) that many farmers need to break even.

Earlier this week, prices on the Fonterra-run fortnightly GlobalDairyTrade auction plunged to their lowest in seven years after the 10th consecutive fall.

Fonterra Chairman John Wilson said the cut in the payout was due to the continued significant 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.

"Current prices are unsustainably low and we are seeing them beginning to impact production levels globally. We have confidence that prices will recover over the course of the season. However, it will be a tough season for our farmers."

The Federated Farmers industry body called on the government to fast-track infrastructure projects in dairy regions to assist local economies through the downturn in dairy prices.

Federated Farmers chair Andrew Hoggard says small scale rural service industries, such as engineering or contracting, in some instances might be hit harder than the dairy farmers they traditionally relied on for work.

"When dairy prices go back up, as invariably they will, then the dairy supply and service industries need to be ready and skilled to get back on to the farms to make up for lost time. Or, at least, people will have had other employment in the district and haven't permanently left for somewhere else," Hoggard said in a statement.

"The government needs to set some priorities over the next year, where it can find valid work for these supply companies."

Irrigation projects, rural roads and broadband rollout were obvious examples.

Hoggard said he had spent Friday morning in a top level meeting with bankers and Fonterra in Auckland.

"We should all remember though that there are two critical things here. First, is that the medium to long term outlook for our dairy exports into Asia is very positive. The second thing is that the banks realize this, and work through their lending to farmers, will be in the best position to capitalize on this future growth."

The main opposition Labour Party said the payout cut would wipe billions of dollars of 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. It means dairy farmers are 5.7 billion NZ dollars (3.74 billion U.S. dollars) in the red over two seasons compared to a break-even payout of 5.70 NZ dollars," Labour finance spokesperson Grant Robertson said in a statement.

The government was in denial with claims that prices for New Zealand's biggest export commodity would "come right" as demand from China picked up -- despite a "milk powder mountain" in China, he said.

"Not only is the Chinese economy slowing down, Europe and the U. S. are aggressively competing to get their product into that country."

Farmers and rural communities were wearing the cost of the government and Fonterra's strategy of unlimited growth in milk supply, the opposition Green Party said.

"Fonterra intend to raise production from 20 billion litres today to 30 billion litres in 2025," Green primary industries spokesperson Eugenie Sage said in a statement.

"The focus on increasing milk volume rather than value is hurting farmers, our economy and our communities. At the same time, it is increasing water pollution and destroying biodiversity when vulnerable lands are converted." Endi