Storm brewing for dairy sector?

A lower than forecast payout to dairy farmers foreshadows the considerable challenges faced by the sector, Labour’s Primary Industries spokesperson Damien O’Connor says.

“Any further cuts to the milk price payout will put real pressure on the large number of farmers already highly leveraged.

“A large chunk of the payout is required to service a $40 billion industry debt. With ever- increasing costs of production many farmers will be squeezed by payouts below $5.50kg/MS.

“Combine that with the exposure of bank swap loan arrangements, which further increase the costs of finance, and many will struggle to farm profitably.

“The continuation of an overvalued New Zealand dollar and the refusal by the National Government to change monetary policy means our single largest primary export sector faces tough times ahead.

“My concern is that pressure to sell shares under the new Trading Among Farmers structure will grow and ultimately result in the dilution of farmer control of the Fonterra cooperative.

“There are clouds gathering. Let’s hope a perfect storm that could lead to a major shakeup of the dairy industry isn’t brewing,” said Damien O’Connor.