Fonterra announcing a reduced forecast milk payout for the season is far from the biggest issue facing farmers at present, a Mid Canterbury farmer says.
Dorie dairy farmer and Fonterra Southern co-operative councillor, Mark Cressey, says while the revised forecast adds to the pressure on the sector, there are bigger concerns.
“We are still getting a pretty good milk price. The biggest problem is increasing costs,” Cressey said.
Fonterra has revised its forecast to a range of $8.00-$8.60 per kilogram of milksolids with the midpoint for the range now $8.30, representing a drop of 20 cents.
According to the farm expenses price index, farm inflation is sitting at 11 per cent.
The main drivers for the high inflation rate are feed, which is up 20 per cent, fertiliser which has seen an increase of around 30 per cent and interest rates, which are up around 40 per cent.
“Farm inflation is having a major effect, much more than the milk price,” Cressey said.
“The milk price is what the milk price will be, and we are going to have to work with that.”
Farmers will need to adapt to rising costs, Cressey said, and look for a back-to-the-basics approach to farming in the current economic climate.
“We are going to have to change the way we perform, and that might mean using lower-cost systems and going back to traditional New Zealand methods.
“Ten years ago, when we were getting payouts of $3.90, we were in a similar position to what we are now, and most of us survived.
“We learned a lot of lessons in that time, and we have to learn those lessons again.”
He recommends reducing input costs and holding off on adding technology such as cow collar systems until inflation rates level out.
“Long-term collars can save a labour unit, but now might not be the right time to be doing that because straight away you’ve increased your cost of production.
“We could change what we are doing on the farm by putting less feed into the system that we contracted to put in or could go to once-a-day milking.
“We can cut the cost of systems if things get too dire.”
Fonterra has cited lower-than-expected demands for whole milk powder from China and an increase in production in the Northern Hemisphere as factors in the revised farm gate milk forecast.
“We don’t know how quickly China will recover,” Cressey said.
“But Fonterra’s reliance upon China has come down a lot. Last year we were selling over 30 per cent of our product into China, this year we are down to 26 per cent.
“If we can reduce our reliance on China, it will be good in the long term.
“China will come back to the party at some point. It’s just taking longer than expected to get there.”
Fonterra chief executive, Miles Hurrell, is optimistic prices will lift. “We remain positive about the outlook for next season and will share our opening 2023/24 farm gate milk price forecast in May,” Hurrell said.
- By Claire Inkson