Gerald Holmes is preparing for a 10% drop in income next season, but the Taieri dairy farmer warns that the country, not just he, will suffer from Fonterra's reduced payout.
Mr Holmes expected bad news from the dairy company yesterday, but the message was gloomier than he anticipated.
Fonterra announced it would pay milk suppliers $4.55 a kg of milk solids (kg/ms), well down on the $5.20 kg/ms this season and the $7.90 kg/ms paid in 2007-08.
It blamed the rising exchange rate, which broke US60c during the past week, the United States and Europe reintroducing export subsidies for dairy products and continued weak markets.
Mr Holmes has already started looking for ways to cut costs and intends reducing purchases of supplementary feed from outside his farm and the volume of nitrogen fertiliser he applies, but this would also mean lower overall milk production.
He said councils also needed to trim their costs and realise it was wrong to view rural ratepayers as wealthy.
Federated Farmers estimated the lower milk price meant $780 million less would circulate through the economy this season compared with the previous one, and Mr Holmes said lower spending by farmers would be felt by all New Zealanders.
The economy benefited when dairy farmers received $7.90 kg/ms, but he said farmers were seen then as wealthy and profiteering at others' expense.
Mr Holmes said managing cashflow next season could be an issue as Fonterra had lowered the monthly advanced payment it made to farmers next season from $4.25 kg/ms to $2.90 kg/ms.
Banking sources said the lower payout would hit those new to the industry the hardest as they were heavily in debt and had locked in loans at fixed interest rates and had not benefited from those rates falling.
The lower milk price meant they had little room to move and some of the most indebted could be forced to sell.
Fonterra Shareholders' Council chairman Blue Read said the coming season would be demanding for farmers.
Incomes were back to 2007 levels but farm costs were higher.
Federated Farmers dairy section chairman Lachlan McKenzie said the lower forecast payout meant dairy farmer income would be $3.7 billion less than the record 2007-08 season.
"So if you live in the city and think you're immune from this, think again.
"It's a hell of a lot of money that isn't coming through the front door of the economy."
Mr McKenzie told NZPA that rural councils were killing the economy's golden goose with excessive rates and other costs.
He urged the Government to step in and control council rating powers.
"This attitude, that farmers are a bottomless pit of money, stinks," he said.
