Southland dairy farmer John Clarke is warning of a dairy industry about to come under pressure after Fonterra announced a substantially reduced payout for the coming season.
Fonterra yesterday announced a revised forecast payout of $5.10 per kilogram of milk solids (kg/ms), a 90c reduction on its previous November forecast of $6 kg/ms.
"This will put the whole sector under pressure, given the increased costs that have occurred in the last 18 months to two years.
"Banks get the money first then the farmers get what is left to spread out among the community in general. It is worrying times."
Mr Clarke, who has an interest in farms milking 4000 cows, said he had expected the payout to be $4.80 kg/ms and still believed it would be $4.80 kg/ms once Fonterra retained 30c kg/ms to strengthen its balance sheet.
This was the fourth time he had seen such a downturn in the 24 years in the industry.
There would be less money going around the communities and people should be careful with their spending.
Most dairy farmers came through the downturn but there were always some farmers who struggled.
Some recent entrants to the dairy industry would have bought land at high value, but in Otago and Southland land values had increased, but only to levels of where they should be, he said.
"Otago and Southland is among the best farming districts in the country. I've come from the North Island and this is good country."
Mr Clarke was critical of Fonterra chief executive Andrew Ferrier's mention of Fonterra's competitors during the televised media conference yesterday.
Mr Ferrier said he believed Fonterra's global market position and focus on a strong balance sheet placed it in a better position than many of its competitors.
However, Mr Clarke said Mr Ferrier's focus should be on what Fonterra was doing.
ABN Amro Craigs broker Chris Timms said farmers' immediate cash flow would be affected by Fonterra's decision to not pay the value return component in April.
The average dairy farmer producing 100,000 kg/ms would have expected a payout of about $22,000 in April.
While they would receive the full $45,000 payout in October, farmers would feel extra pressure on their balance sheets in April.
Fonterra wanted to make sure it had sufficient capital on hand at its balance date and the market was anticipating the company would raise debt through a bond issue to ensure it had sufficient liquidity.
"Retaining the cash for six months gives them a much stronger balance sheet."
Labour Party finance spokesman David Cunliffe said economic events like the reduced payout made it even more important the Government provided details of its plan to see the country through the global recession.
