Ag jul312014

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Thursday, July 31, 2014

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Mid Canterbury may be down $285m BY SUE NEWMAN

SUE.N@THEGUARDIAN.CO.NZ

The difference between Fonterra’s milk solid payout to dairy farmers this year and its revised payout for next year will carve $285 million out of the Ashburton District’s economy, a business leader says. While that means less will be spent in the district’s economy, in real terms it was an improvement over the longterm payout average of $5.70 over the past 10 seasons, said Grow Mid Canterbury chief executive Rob Brawley. “It has to be put in perspective. Last year they effectively won Lotto, but most of the dairy farmers I’ve spoken with are smart business people. “They know the 2014 payout was

a bonus and have been spending it accordingly; reducing debt, setting aside working capital, taking care of outstanding maintenance etc and this is supported by feedback from a leading rural banker.” While the 2014 season saw the highest payout to date, the reality was that not all of the extra money made would be spent in the local economy, he said. “However, it will mean there must be a reduction in spending because there will be less money available. They’ll look closely at their cost structures and reduce discretionary expenditure where they can.” That wasn’t all bad news for local businesses, Mr Brawley said, because

most of the irrigated dairy farms were committed to regular expenditure to operate their farming businesses and that money would continue to flow. “What it does mean is that supporting businesses need to be aware it could mean there will be less money flowing through our economy.” As a result of last season’s payout, he believes that most dairy farmers will be in a reasonably sound position and with reliable irrigation they would be able to maintain production at high levels. Mr Brawley said there was still plenty of confidence in the dairy sector, with a good level of conversions planned for this season. He doesn’t believe this year’s payout

dip will see the end of strong payout prices. The low price is laid at the door of strong international milk production, stockpiling in China, some price sensitivity from emerging markets and the high New Zealand dollar, he said. “But there is still a gap between the expected demand for food and the ability to produce it over the next 20 years as the world’s population continues to grow. “Demand for high quality food, such as dairy, hasn’t suddenly disappeared.”

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