A $75.8 million drop in collective income for Bay of Plenty farmers could be the impact of Fonterra's forecast reduction in milk prices, says DairyNZ.

Today Fonterra has reduced its forecast farm gate milk price for the 2014/15 season from $6 to $5.30 per kgMS.

Photo: File.

The impact of that fall on New Zealand farmers as a whole could be around $1.1 billion says Dairy NZ communications manager Bernadine Walsh.

DairyNZ has used 2013-14 estimated regional milk production to calculation its predicted regional loss to farmers' income.

'Just to clarify, this isn't a comparison with last year's milk price, it is just a calculation of the loss from this latest downward forecast.”

Fonterra chairman John Wilson says the reduced forecast follows last season's $8.50 pay out and the lower forecast price reflects continuing volatility, with the GlobalDairyTrade price index declining six per cent in the past two trading events.

'Farmers understand market volatility and budget accordingly but this (reduced forecast) will create some uncertainty for farmers in the second half of the milk production year.”

At the same time as announcing the forecast drop, Fonterra has widened the estimated dividend range from 20-25 cents per share to 25-35 cents – amounting to a forecast cash pay-out of $5.55-$5.65 for the current season.

'The market is currently influenced by strong milk production globally, the impact of Russia's ban on the importation of dairy products, and the levels of inventory in China. Some relief has been provided by exchange rates, with the NZ dollar recently showing some signs of falling against the US dollar.

'Under the current market conditions, there is further downside risk. However, the forecast reflects expectations that prices will increase in the medium term.”

Fonterra chief executive Theo Spierings says political unrest in many parts of the world including the Middle East, Europe and Africa mean volatility will remain in markets, but there are reasons for optimism going forward.

Among those are the fact New Zealand farmers produce milk products which have high taste and texture qualities appreciated by consumers and Fonterra's intentions to focus on five main brands to achieve market premiums for those products.

The drop in returns to farmers won't mean cheaper dairy products for Kiwis.

Theo says Fonterra did not increase prices during last season's high income and won't be dropping prices this season either.

But he did say the company is set to make a major announcement next week which should help grow consumption in the New Zealand market.

Fonterra Shareholders' Council chairman Ian Brown says farmers will be disappointed following the co-operative's latest milk price drop.

'Even though farmers are aware of the prevailing market conditions and the effect they have on the price they receive for their milk the announcement will add to the challenges being faced on-farm.

'It is in these seasons that farmers will want to receive the full benefit from the integrated supply chain that their co-op provides.

'As farmers we are all too aware of the volatility that underpins our industry and this announcement will put real pressure on some farmers' cash flows.

'It is important for farmers to remember that while this is a forecast it is vital that you continue to exercise real prudence in your financial planning.”