The dangers of living in an economy too dependent on agriculture hit home today in New Zealand.

Dairy farmers are facing a “disastrous” year after a prediction that none will make money from Fonterra’s payout forecast, issued today.

According to an article in today’s NZFarmer.co.nz:

Fonterra today cut its farm gate milk price forecast for the 2014/15 season from $5.30 per kilo of milk solids to $4.70/kg amid ongoing global milk powder price weakness.

The New Zealand dollar fell half a cent against the greenback, from US77.1c to US76.6c, after the announcement.

The forecast is well down from last season’s milk price of $8.40/kg and would equate to a cut in dairy farmer incomes of around $6.8 billion according to Dairy NZ figures. A forecast dividend increase from 10c per share last season to between 25c and 35c will be of little solace to farmers.

Dairy prices have continued to fall since the last quarterly payout forecast was announced in September, with whole milk powder falling nearly 17 per cent while skim milk powder was down 8 per cent…

According to John Kuyf, the managing director of REL group, the financial and emotional impact of Fonterra’s forecast is “quite severe” Most of his friends need $5.30 just to keep their heads above water, he said

“We’re an agriculture-based country. And it’s just a bugger.”

The NZ Herald wrote:

Westpac said the drop from season’s record $8.40 farmgate milk price to $4.70 was equivalent to a reduction in income of $6.1 billion for the New Zealand dairy industry, or 2.7 per cent of the nation’s gross domestic product…

Large scale job loses are predicted as farmers start laying off workers.

So, is this the beginning of the end for the “rockstar economy” ?

It does look like it. New Zealand has failed to build up any other significant sectors of its economy. It’s tourism and international student markets generate a fraction of the income of its dairy sector.

Looking on the bright side, a decline in dairy farming will have positive impacts on New Zealand’s environment and a significant decline in the use of fertilizers. Runoff from farms has rendered many of the country’s water bodies too polluted to swim in.

“We must get real about cleaning up our rivers and lakes, because the world is beginning to realise that we aren’t living up to our clean green image.”

quote from Dr Russell Norman, leader NZ Green Party.

There is also likely to be a drop in property values as confidence goes out of the economy and unemployment rises. Investors will seek out other rockstars to follow.

@E2NZ Wait until traces of #1080 are found in our #exports – this fall will fade into insignificance . . . :{

— Tricia Cheel (@WonderMouseNZ) December 10, 2014

Read more about New Zealand’s green credentials here: Green credentials or greenwash?

“Not the first time” – the Environment Court hears Taranaki farmer on pollution charges has 18 previous “incidents” http://t.co/Fj2LZKd2Hw

— Fish and Game NZ (@FishandGameNZ) December 9, 2014

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