Saved by the cows
Fonterra is now predicting a payout of $7.30 per kilogram of milksolids, which is expected to bring the average dairy farmer about $730,000 before tax in the year ending July 31.
It means that more than $8 billion - $3.8 billion more than last year - will flow off dairy farms into businesses and the Government%26#39;s coffers this year.
Already, rural retailers are reporting a 10 per cent rise in spending, compared with 1 per cent to 2 per cent in cities. And the Real Estate Institute cited yesterday a %26quot;flight of capital%26quot; into dairying as farms sell for record prices.
Westpac economist Dominick Stephens said the fall in house prices had shocked people and prevented them from seeing how well the economy was performing. Low gdp growth was expected over the next year but the infusion of dairy money would help the economy to weather the storm.
%26quot;People shouldn%26#39;t be too pessimistic about the long run. Five years out the outlook is fantastic, thanks to world food price inflation, of which the payout is a prime example,%26quot; he said.
The dairy boom had pushed up the dollar, which was good for consumers who bought imported goods and services. %26quot;That has diffused the benefit away from just dairy farmers to the general population.%26quot;
A further influx of capital would come from retired farmers selling their farms for 50 per cent more than they had expected.
The Real Estate Institute reported yesterday that dairy farms were being sold at multiples of $50 per kilogram of milksolids, setting a new benchmark for measuring the industry land boom. Sales numbers were actually increasing, in stark contrast to residential property.
The rise from the previous forecast payout of $6.90 brought some comfort to farmers suffering the drought in the main dairy regions of Waikato, Taranaki, Manawatu, Wairarapa and parts of Canterbury.
It is the fourth time Fonterra has lifted its forecast since first predicting $5.53 last May. Since then the boom in international commodity prices has continued as demand for milk products, particularly skim-milk and wholemilk powders and cheese, has increased as standards of living improve in Asia and oil-producing countries.
The boom has shown signs of faltering in recent weeks, but the damage has not been as bad as first feared. This is because the drought has restricted supplies from New Zealand, a key international player.
Fonterra chairman Henry van der Heyden said it was ironic that farmers had the drought to thank for a payout rise. The increase would go only some way, however, to cushioning the impact of the drought, which had caused a shortfall of 80 million kilograms of milksolids.
Before yesterday%26#39;s rise the Agriculture and Forestry Ministry had estimated the drought will cost the industry $894 million in lost milk and higher feed costs and farmers in South Taranaki had put their losses at between $130,000 and $180,000 a farm.
Mr Van der Heyden deferred an announcement on next year%26#39;s forecast till the board meets again at the end of May. Speculation has put it around $6 to $6.50.
He said the payout could rise further this year but the instability in global financial markets may mean the board would retain some of this.
Federated Farmers dairy chairman Frank Brenmuhl said some members would still struggle, despite the improved payout, but added: %26quot;If you%26#39;re going to have a drought it%26#39;s better to have it in a high payout year.%26quot;
He expected the drought%26#39;s effects would be felt beyond the next year as some farmers went into winter with low feed covers and with cows in less than ideal condition.
