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New Zealand dairy farmers are facing a near 30% cut in the prices paid for their milk today as all three of the country’s milk processors have now dropped the price to under NZ$3.90/Kg MS. 

Fonterra Cooperative Group, the world's largest dairy exporter, has cut its farmgate milk price for the 2015/2016 season from $5.25 to $3.85 per kilogram of milk solids. 

DairyNZ chief executive Tim Mackle said the drop in milk price would result in NZ$2.5 billion dropping out of rural economies, 

"Milk price is now half what it was in 2013/14. We calculate around nine out of 10 farmers will need to take on extra debt to keep going through some major operating losses," Mackle said. 

"For the average farmer you are looking at covering a business loss of $260,000 to 280,000 this season but for many it will be a lot more than that."

DairyNZ analysis showed the average farmer now needed a milk price of $5.40 to break even.

Fonterra Chairman John Wilson said the Farmgate Milk Price forecast has been reduced due to the continued significant imbalance in the global dairy market between weak demand and surplus supply.

“This imbalance and the challenge of lower prices continuing for longer than anticipated is a global issue, which dairy farmers around the world are increasingly grappling with.

“Current prices are unsustainably low and we are seeing them beginning to impact production levels globally.  We have confidence that prices will recover over the course of the season. However, it will be a tough season for our farmers.

“The range of possible scenarios is contributing to the uncertainty we are seeing today.“We know the global dairy market will improve.  The hard thing to call at the moment is exactly when and how quickly,” said Mr Wilson.

Wilson said Fonterra would offer support to farmers in the form of a loan to help them deal with the challenging conditions.

All Fonterra share-backed farmers will be given the opportunity to apply for Fonterra co-operative support amounting to an additional 50c per shared-up milk solids for production for the season.

This payment, interest free for two years, will be paid back when the farmgate milk price or advance rate goes above $6 per kgMS.