Looming clouds of recession over New Zealand grew darker yesterday as the Fonterra dairy company dropped its forecast milk payout for this season by a further 90c - meaning combined farm incomes would be up to $2.4 billion less than last year.
The adjustment, from $6 to $5.10, means the average dairy farmer's income will drop by $100,000 but the reduction from $7.90 kg/ms last season to $5.10 kg/ms this season will mean a fall in income of $320,000.
And this may not be the lowest point, with senior Fonterra management yesterday saying the market was shrouded in uncertainty.
Chief executive Andrew Ferrier said the company was taking a pessimistic view on international commodity prices.
He blamed the lower payout on the worsening international economic crisis and the recent decision by the European Parliament to reintroduce dairy export subsidies.
Mr Ferrier said the latest forecast was a best estimate that took account of market prices, the initial softening of world markets following the EU decision and the fluctuating exchange rate.
"Our view is that the bottom is lower than we thought it was." he said.
He believed global prices would start improving later this year and early next year.
The announcement was met with dismay in the rural sector. Southland dairy farmer John Clarke warned of an industry facing increasing difficulties.
"Banks get the money first, then the farmers get what is left to spread out among the community in general. It is worrying times."
Federated Farmers economics spokesman Philip York said a payout of $5.10 was still high by historic standards.
However, he said extra spending would be put off for another season.
"I think there's a lot of things they [farmers] would have liked to have done - either expansion or catching up on things, or spending some money on the house," he said.
"Those are the things that may have to go by the board."