Dairy price plunge exposes New Zealand farms to foreign takeover: lawmakers

New Zealand's pillar dairy industry is at risk of falling into foreign hands, lawmakers warned Wednesday after forecast farm earnings were cut drastically.

New Zealand dairy giant Fonterra Co-operative Ltd. on Tuesday announced it was cutting its forecast payout to farmers this season from 4.15 NZ dollars (2.80 U.S. dollars) per kilogram of milk solids to 3.90 NZ dollars (2.63 U.S. dollars).

The cut puts the industry in a "severe scenario" outlined by the Reserve Bank of New Zealand (RBNZ) in a report issued in November last year.

Under that scenario "farm prices are assumed to fall by around 40 percent" by 2018 to 2019, when about 44 percent of farmers would be forced to default on bank loans.

Finance Minister Bill English on Radio New Zealand on Wednesday admitted that plunging global dairy prices would hit New Zealand farm values.

"It's going to be a significant adjustment to getting back to the core business of effective farming for cash flow. They are going to see land values drop, I think that's pretty much certain," said English.

"But I think between the industry and the banks they'll be able to find their way through it," he said.

"They've already done a couple of tougher seasons, it looks like there'll be at least one more in front of them and it looks like they'll get through."

The main opposition Labour Party said up to 5,000 farmers could be hit with what was being described as "toxic debt."

"If 44 percent of farmers default, banks will have no choice but to foreclose. Many of those farms could be sold overseas," Labour finance spokesperson Grant Robertson said in a statement.

"Mr English says loan defaults will be up to the banks and industry to handle. That's not good enough."

The opposition Green Party called on the government to "rule out" mass sales of New Zealand rural land to overseas buyers.

"New Zealand is facing the prospect of a double disaster as the dairying slump flows through to the rest of the economy, and the government's lax overseas land sales rules risk large tracts of productive land being sold off overseas," Green Party co-leader Metiria Turei said in a statement.

On Tuesday, the Federated Farmers industry group called on the RBNZ to cut its official cash rate from 2.5 percent at its next review on Thursday to ease the burden left by the cut in the forecast payout.

Opposition lawmakers said the cut in the forecast payout would leave a "hole" of 8.2 billion NZ dollars (5.53 billion U.S. dollars) in the New Zealand economy. Endit