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Loss of $4.6 billion possible because of low dairy prices in New Zealand

Staff writer |
Falling international dairy prices are going to blow a hole of 6 billion NZ dollars ($4.6 billion) in New Zealand's economy, experts warned after dairy giant Fonterra slashed its payout to farmers.

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Fonterra Co-operative Group Ltd. cut its forecast payout for the 2014-2015 season from 5.30 NZ dollars ($4.07) per kilogram of milk solids to 4.70 NZ dollars ($3.61).

Fonterra Chairman John Wilson conceded that although farmers were expecting this lower forecast, the revision would put pressure on their farming business budgets.

"Falling oil prices, geopolitical uncertainty in Russia and Ukraine, and subdued demand from China as it continues to work through inventory are all contributing to ongoing volatility and weak demand," Wilson said in a statement.

Dairy prices plunged to their lowest point since August 2009 at last week's fortnightly GlobalDairyTrade auction.

New Zealand's key dairy export, whole milk powder, fell by 7.1 percent in the Fonterra-run GlobalDairyTrade auction to 2,229 a tonne, dragging down the average dairy commodity price by 1.1 percent to 2,513 a tonne.

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