Dairy farmers are facing a 'very tough and grim season” in light of Fonterra's forecast Farmgate Milk Price of $5.25 per kgMS for the 2015/16 season, with the rural economy also likely to be affected.

That's the view of DairyNZ chief executive Tim Mackle, who says: 'By our calculations, this forecast will translate into an average farmer's milk income dropping by $150,000 for this next season,”

DairyNZ is warning farmers that annual farm working expenses will need to be reduced to minimise increasing debt levels. Photo: File.

DairyNZ is ramping up its support to dairy farmers following the Fonterra announcement and has already been working on boosting its 'Tactics for Tight Times' campaign to help farmers cope.

'We've worked out that the break-even milk price for the average farmer now going forward is $5.70 kgMS,” explains Tim.

'Yet under this forecast scenario they'll only be receiving $4.75 all up in terms of farm income, including retro payments from last season and dividends.

'Annual farm working expenses will need to be reduced to minimise increasing debt levels further.

'The flow-on impacts to the local economy will be significant as that money gets spent on things like feed, fertiliser, repairs and maintenance items. There will also be less capital spending in our sector.

'We will see most farmers facing significant negative cash flows for much of the next 12 months leading to an increase in debt and overdraft expenses to get their businesses through another low milk price season.

'What we need to do is provide advice and wrap support around our farmers to help them cope with all the decisions they will have to make.

'We don't know when milk prices will pick up, so we're planning for the worst but hoping for the best.”

The payment will be the lowest farmers have received since Christmas 2006/07, signalling a challenging season ahead.

However, Tim says it is also an opportunity to strengthen the resilience of the industry to become more efficient in how it farms.

'Ultimately this kind of challenge could make us more competitive if we use it to drive efficiency throughout our businesses,” he adds.

'Many of our farmers have coped with low milk prices in the past, and so this isn't new for a lot of people, or even that unexpected given where global milk prices have been heading.”

'Farmers have been preparing for the worst case scenario, and this is pretty much it. So now it's a matter of everyone pulling together to cope with it.

'We'll particularly need to support those farmers who have just bought farms or who are first-year sharemilkers, as they will have more debt to manage.

'Lower order sharemilkers are also under immense pressure as they have little wriggle room.”

DairyNZ will be shifting its 'Tactics for Tight Times' campaign to a seasonal calendar of advice on 'farming fundamentals” that will look to give farmers targeted advice on key decisions.

'We want to give them the right advice at the right time when they will be making the big calls,” says Tim.

'We'll be working with our case study farmers and other farmers to help shape that support and share tips and tactics around the regions on getting through a low milk price cycle.”

DairyNZ's whole farm assessment approach will be used to map out where a farmer can make the most cost-efficient gains on their farm.

'This kind of thinking helps customise actions to an individual farmer's particular situation. It's a good way of working out how you can take costs out of your farming system in the short term without affecting your long term plan or profitability too much.

'We've been planning to run this ramped up support approach for at least the next 18 months,” he explains.

'We know that the payments farmers will get through the winter will be particularly low and that's why we've been pushing everyone to do a cashflow budget.

'Farmers have got to know their situation if they are going to develop a plan to cope with it. You've got to know how low you will go and how long you will stay there.

'This is really about keeping things in perspective too. Farmers will be looking for help to make smart choices.

'It can be hard to think straight and make good decisions if you are under stress and pressure.

'We'll be bringing all our industry together – the rural support trusts, the banks, the Dairy Women's Network and others – to ensure this is a co-ordinated effort.

'We need an industry safety net around our farmers to look after their mental wellbeing too.”