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Reduced dairy payout will hit economy

24 September 2008

Reduced dairy payout will hit economy

Federated Farmers Dairy chairman Lachlan McKenzie warned while New Zealand's major economic tap is not being turned off, it is being turned down.

He made the comments following today's announcement by Fonterra Cooperative Group, that in the space of the 2007/08 and 2008/09 seasons the payout is set to go from the $7.66 announced today, to $6.60 per kilogram of milksolids (/kgms) forecast for next season. Mr McKenzie said this reduction will suck $1.2 billion out of the economy in 2008/2009.

"Bearing in mind the champagne corks popped over the billion dollar gain from the proposed multilateral free trade agreement with the United States, this is more than offset by the $1.2 billion that will be lost to the economy over the next twelve months. Dairy is not the 'one-way bet' some commentators, politicians and policy makers may have believed until now."

"That said, if we were looking at a forecast of $6.60/kgms even three years ago, dairy farmers would have been celebrating. The difference from three years ago is the New Zealand economy is now in recession with farmers facing increased year-on-year working costs of 10%. With large on-farm debt levels this reduced payout forecast will have a major economic impact."

"In the last three years alone my personal on farm costs alone have increased by the equivalent of $1.50/kgms. We hope Government and councils alike will show restraint and discipline on new compliance costs affecting the agricultural industry."

Mr McKenzie called on Dr. Alan Bollard, Governor of the Reserve Bank of New Zealand, to institute a one percent cut in the Official Cash Rate on 23 October to avoid a hard economic landing.

"Around a year ago the dairy sector was singled out as the reason interest rates were kept high. That logic no longer holds as the entire business sector needs relief from crippling interest rates."

Federated Farmers also asks councils to plan for restraint in the setting of rates for the 2009/10 financial year.

"With the economy in recession Federated Farmers calls into question the wisdom an emissions trading scheme that includes agriculture. There is also concern over the unknown costs associated with the proposed National Animal Identification Traceability (NAIT) system let alone potential regional fuel tax levies. If ever there was a time for prudence it is now," said Mr McKenzie.


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