The Labour Party is warning that banks could soon be forcing dairy farmers to sell their land, and that overseas investors will buy it up.
Labour leader Andrew Little believes tracts of dairy farmland are likely to be sold off throughout 2016. Photo: RNZ / Alexander Robertson
Fonterra has slashed its forecast payout for the season to $3.85 per kilo of milk solids - far below the break-even point for many farmers.
Labour leader Andrew Little said the plunge in Fonterra's predicted payout, reflects global prices and comes as no surprise.
Mr Little's expecting prices to stay low for several seasons, and he said banks' patience with many indebted farmers will wear out before then.
"The banks have so far told me they'll see farmers through one difficult season, but they would struggle to see them through two difficult seasons.
"The question then, is what happens to both farmers who cannot meet their payment or the cost of production, and what happens to the land that they're farming?" Mr Little asked.
"The risk is of course that they then have to go on the market and the cash that's available to pick up land is offshore money and we then risk seeing a lot more productive land going into overseas hands."
Mr Little said it was likely tracts of dairy farmland would be sold off throughout 2016.
"At some point the banks will lose patience, that's the nature of them, I suspect that next year the crunch is going to start to happen, in terms of land ownership and land sales."
Primary Industries Minister Nathan Guy said global dairy prices were falling further and faster than anyone anticipated.
Nathan Guy Photo: RNZ / Alexander Robertson
He said farmers would need to hunker down and ride out a tough 12 to 18 months - but he was confident the banks were prepared to ride it out with them.
"By and large I think banks, the indication that I'm getting from the bankers is that they will stand by farmers," Mr Guy said.
"It's also good to see that Fonterra have stepped up and they're offering 50 cents kilogram of milk solids - basically an interest free loan."
New Zealand First leader Winston Peters said the dairy industry was in the middle of a crisis and that the minister's optimism was completely unfounded.
"Well the banks are moving on these farmers already - that's the point," Mr Peters said.
Winston Peters Photo: RNZ / Diego Opatowski
"They are making very clear that people may as well exit, or if at best they'll be told to accept a certain price and paid a salary and stay on and keep the farm, as much as possible, viable.
But all their equity will be gone and they'll be no longer owners of the land..." Mr Peters said.
Mr Peters said this season's payout would head lower still, $3.50kg/ms, and he argued that Fonterra needed to suspend its trading on the Global Dairy Trade auction while prices were low.
Green Party primary industries spokesperson Eugenie Sage said the Government and Fonterra's strategy to produce ever more milk puts farmers and the economy at greater risk.
"You've got Fonterra still preoccupied with this growth strategy of two to three percent annually, of growing production to 30 billion litres by 2025.
Eugenie Sage Photo: GREEN PARTY
"That makes us much more vulnerable to changes in commodity prices."
Ms Sage said the Government needed to be encouraging diversification and more investment in research and development.
This year, the Reserve Bank warned high levels of debt in the dairy sector were a threat to the economy - saying dairy debt had trebled to $34 billion since 2003.
It said a third of that debt was owed by 10 percent of dairy farmers.