Low price will hurt South

Fonterra offers farmers interest-free loans to soften the financial blow

The South Island economy should brace for tougher times as farmers’ incomes drop nearly $3 billion in less than two years.

Giant dairy co-operative Fonterra told its farmers yesterday it would only be paying them $3.85 a kilogram of milk solids for the coming season, the lowest forecast payout in ten years.

The payout forecast is way below the $5.40 the average farmer needs to break even.

It will be the second year of falling incomes, dropping from the $4.40 Fonterra forecast for the season just ending, although that still has to be finalised, and a huge drop from the boom payout of $8.40 two years ago.

In this coming season South Island farmers’ income will be nearly $3 billion less than two years ago when they were paid $8.40 a kg.

The last time farmers received $3.85 was the 2005-06 season, but farm costs were lower and they were carrying less debt.

Opposition politicians have dubbed the latest announcement ‘‘Black Friday’’ for farmers.

Canterbury Development Corporation (CDC) chief executive Tom Hooper said Fonterra was softening the blow by offering farmers a 50 cents a kg loan, interest-free for two years on top of the $3.85.

‘‘The impact on the whole South Island economy – and this is true of Canterbury as well – is negative,’’ Hooper said.

‘‘There will be a reduction in income for farmers which will mean a reduction in spending.’’

The decrease would hurt rural towns in particular, but also Christchurch.

A strong farming sector had supported the Canterbury economy after the earthquakes, but when the rural regions were having tough times, it would have an impact on the city.

Farmers would cut spending on farm plant and equipment, vehicles, and retail spending.

Christchurch would be insulated to a degree by having the rebuild and more people arrive through migration.

‘‘It’s a good time for the city to remember the relationship between it and the rural hinterland and to do what it can for the rural marketplace,’’ Hooper said.

Canterbury Employers’ Chamber of Commerce chief executive Peter Townsend said the impact of falling dairy farmer incomes on the South island would be significant.

Dairy exports were about 20 per cent of the country’s exports and Canterbury punched above its weight in that area.

Townsend said it was good to see some pragmatism at work with Fonterra’s interest-free loans.

‘‘We just need to make sure that we’ve got the support in place for an essential part of our economy to do whatever the country can to see them through some very challenging times.’’

The sector would bounce back as Southeast Asian nations bought more dairy goods.

It would not have a material impact on the Christchurch economy because the rebuild would help shield it.

The people of Christchurch needed to understand the trials of the dairy sector though and support it, he said.

The impact on the whole South Island economy – and this is true of Canterbury as well – is negative.

Tom Hooper

Canterbury Development Corporation chief executive