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Dairy prices will help debt levels: Guy

NZ Newswire logoNZ Newswire 14/12/2016 Tina Morrison
"I think there's a ceiling on the number of dairy farms that the country can sustain," says Landcorp boss Steven Carden. © File photo "I think there's a ceiling on the number of dairy farms that the country can sustain," says Landcorp boss Steven Carden.

The recent pick up in dairy prices back to profitable levels may take some time to flow through New Zealand's economy as farmers focus on paying down debt following the prolonged downturn, says Primary Industries Minister Nathan Guy.

Fonterra hiked its milk price forecast last month to $6 per kilogram of milk solids for the current season, which is above the $5.05/kgMS needed for most farmers to break even and compares with payouts of $3.90/kgMS and $4.40/kgMS in the previous two seasons.

Economists estimate the increase in Fonterra's forecast for this season will add an extra $3.8 billion to New Zealand's economy.

Milk processors are raising their milk price forecasts following a 74 per cent increase in the price for whole milk powder, New Zealand's key commodity export, on the GlobalDairyTrade platform since early July

"I'm feeling a lot more confident," Guy told BusinessDesk. "What we are seeing is the supply-demand imbalance correcting itself now which is great. The future is looking, I think, very bright for the dairy industry, albeit there will continue to be some volatility."

Risks to the pick up in dairy prices include European Union stockpiles coming onto the market at some stage in the future, increased exports from the US and the outlook for Chinese demand, although he noted signs that China "is back in the market and pushing up prices through GDT".

Still, Guy said the benefits to the wider economy In New Zealand may take some time to flow through as even though prices are rising, farmers will be focused on paying down debt built up over the past few seasons.

"This dairy downturn has been lower for longer than a lot of people anticipated and I think by and large farmers will be relieved that their banks have stood by them and so I think now there's an opportunity for farm businesses to recalibrate."

The Ministry for Primary Industries is working with the wider industry to develop case studies of high-performing efficient farmers with cost structures below $4/kgMS, the first of which were released last week.

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