The Otago and Southland economies could be nearly $500 million poorer this year compared to last because of lower milk prices for dairy farmers.
After two years of unprecedented growth, lower international prices this year are predicted to remove more the $3 billion from the incomes of the country's 11,400 dairy farmers.
The final payout will be announced later, but it appears farmers will receive $5.10 a kg of milk solids (kg/ms), compared to $7.66kg/ms last season.
Some bankers have estimated 40% of farmers will make a loss this year, as many had budgeted on Fonterra's forecast milk price for this season - $6.60kg/ms - and committed expenditure and investment accordingly.
Had this price been achieved, the southern economy would have been $280 million better off.
Farm consultants say many farmers now face cashflow problems from the lower payout, but also from Fonterra protecting its balance sheet by changing the way it pays suppliers.
The sudden international decline in the milk price prompted Fonterra earlier this season to move to protect itself by delaying until July the seasonal increase in its advanced payment to farmers, usually made in November and February.
Last season it retained 24c a kg/ms from the record milk payout of $7.90kg/ms to strengthen its accounts.
Banks, which just eight months ago were clamouring to invest in the industry, have become much more cautious.
A reluctance to extend overdrafts to farmers has been reported and banks have been monitoring the weekly spending of some clients.
Farmers may have to adjust to a lower payout for some time yet, Westpac forecasting a $4.50kg/ms payout for the 2009-10 season and the farmer-owned industry support organisation, Dairy NZ, $4.60kg/ms.
