Dairy revenue is expected to be about $5.5 billion lower during the coming 12 to 18 months, as economists continue to predict a milk price in the $4 range for the 2014-15 season.
Privately owned Open Country Dairy, which has two sites in the North Island and a whole milk powder plant at Awarua in Southland, is the first company to signal a sub-$5 kg/ms price.
Open Country has told its suppliers to budget for a reduced payout in the range of $4.70-$4.90 for 2014-15, the latest MyFarm newsletter stated.
The company, which is majority-owned by New Zealand food group Talley's, had an $8.50 payout for the 2013-14 season.
BNZ economist Doug Steel said there remained clear downside risk to Fonterra's current $5.30 forecast milk price and the bank continued to see downside risks to its own $4.90 forecast.
While global dairy prices found some stability in late October and early this month, prices remained weak and were 45% lower than a year ago.
Even $4.90 required some bounce in prices during coming months and/or a further material fall in the New Zealand dollar, Mr Steel said.
Combined with a small milk production increase this season, the milk price reduction from last season's $8.40 record will drive down dairy revenue by about $5.5 billion, to about $9.5 billion, or the equivalent of about 2.4% of GDP.
Lower dairy prices would be a drag on economic growth and the external accounts.
The drag on real economic growth would be indirect, including via reduced spending power of the dairy sector.
Ironically, dairy's direct contribution to real GDP growth over coming quarters could well be positive as production rose, he said.
The actual hit to economic growth from the slump in dairy prices to date would partly depend on what prices did next.
The present level of prices and the New Zealand dollar, if sustained, pointed to an even lower milk price in 2015-16.
Dairy farmers would curb spending as cash flows tightened this season. The 2015-16 outlook would be influential on such farmer spending decisions.
While it was a long way away, BNZ's macroeconomic views would be consistent with a figure just under $6 for the 2015-16 milk price. At present, the risks to that view seemed downwards, he said.
Despite the current weakness in prices, the bank remained ''cautiously optimistic'' on medium-term price prospects.
But even if that outlook was constructive, progress was ''highly unlikely to be in a straight line'', he said.
''There will always be a good chance that prices deviate significantly, in any particular season, from any average level as various shocks inevitably hit,'' he said.
