The head of Federated Farmers is calling for cool heads as global dairy prices continue to drop dramatically.
The size of the latest drop in international dairy prices has taken dairy farmers and commentators by surprise. Photo: 123RF
Fonterra has slashed its forecast payout to dairy farmers after 10 consecutive falls in prices at the fortnightly auctions and is warning of difficult times for at least the next few months.
Federated Farmers president William Rolleston told TVNZ's Q and A programme this morning the dairy sector was not in crisis, and the downturn was cyclical.
He said the banks understand that, and were being helpful to farmers.
Mr Rolleston said the best thing the Government could do was reduce the regulatory burden on farmers.
Minister for Primary Industries Nathan Guy said the lower dairy forecast would make it tough for many farmers but banks had indicated they will stand by them.
Fonterra cut its milk price forecast on Friday by $1.40 to $3.85 per kilogram of milk solids.
The average operating cost for dairy farmers is about $4.50 a kilo.
National MP, Nathan Guy. Photo: RNZ / Alexander Robertson
Mr Guy said cashflows would be tight for many of them over the next 18 months.
"The equity in terms of their business will be reasonably sound because I don't see land values dropping too much, they may soften a little bit.
"So this is more of a cash flow issue for the next 12 to 18 months, and the indication I am getting from banks is that they will stand by farmers."
The Bankers' Association said the sooner indebted farmers talk to their banks about servicing their debt, the better.
The association's chief executive, Kirk Hope, said banks have been working with clients in the rural sector, particularly dairy, for quite some time in relation to the reduced payout.
"The types of things banks have been working with their clients on has been developing stronger business plans so that capital expenditure can go into the most efficient and effective parts of production.
"Also, if necessary, they can suspend interest payments for a certain number of time."
Political leaders propose solutions
Labour Party leader Andrew Little said he did not expect dairy prices to recover for a year or two.
He called for farmers, banks and the Government to work together to address what he believed was a crisis in the sector.
He told TVNZ's Q and A programme this morning that farmers may otherwise be forced to sell their land, which could well end up in the hands of foreigners.
Mr Little said the Government needed a regional development strategy.
Meanwhile, New Zealand First leader Winston Peters is calling for Fonterra to temporarily pull out of the Global Dairy Trade auctions.
He said he expected prices to fall further, and action needed to be taken.
Mr Peters believes withdrawal would help stabilise dairy prices.