It was eight years ago yesterday that farmers voted to form Fonterra, New Zealand’s biggest dairy company.
If the company has a cake it will be more modest than the one it might have had a year ago when the milk payout was at its peak.
The new season’s forecast is a much more modest $4.55 per kilo of milk solids.
The freezing of executives’ pay may be a symbolic gesture but it does send a signal to the industry that the white gold has lost some of its lustre.
Adding to concerns is the Reserve Bank’s warning in its May Financial Stability report that agricultural lending has increased steeply and may not be sustainable.
The reintroduction of subsidies in the USA and EU hasn’t helped matters and will slow the recovery. However, even with subsidies dairying in Britain isn’t healthy.
Phil Clarke notes a DairyCo survey conducted in February and March which showed:
The sharp decline in dairy commodity prices in 2008, which has now filtered through to farmers milk cheques, combined with rising input costs, has led to a radical reversal in this year’s Farmer Intentions Survey.
The latest document shows that just 18% of producers now plan to increase output, while the number looking to quit the industry has shot up to 13%……
According to DairyCo, the quitters will outweigh the expanders considerably in volume terms, leading to another 5% drop in UK milk output by 2010/11.
The situation gets even worse if further price falls are factored in. If prices drop another 2p/litre, then the percent who would leave the industry doubles again to over 30%, while only 6% would increase production.
The implications for the future of British milk production are frightening. Even at current prices we are going to see another significant fall in milk output and a sharp rise in our import dependency.
That bad news for British dairying may provide an opportunity for New Zealand because if Britain can’t produce enough to satisfy domestic demand for dairy produce we’d be ready and willing to fill any gaps on their shelves with ours.
Homepaddock 